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Won’t Get Fooled Again!                                                                                17 October 2019

Still heading south, albeit at a markedly slower rate, there are indicators that a recovery in the realty sector could soon take traction. Dubai Land Department has reported that YTD, property transactions are 12% higher than in 2018. This week, property website Bayut reiterated that the current environment presents good conditions for all stakeholders – buyers, investors and renters.

Although most locations have seen twelve-month price declines in the region of 6%, lower falls have been reported in Dubai Sports City and Dubai Silicon Oasis. The DLD estimates that last year first-time buyers equated to 66% of total investors. In Q3, villa sales saw a 6.6% decline in average price per sq ft to US$ 600, whilst the decline was higher for apartment sales, with prices 8.1% down at US$ 357.

The latest updates from Luxhabitat show that the most expensive YTD property sale in Dubai was for a villa, at US$ 25 million, located at MBR City, an area that is still under development and away from the usual expensive hot spots. The other three that make up the four most expensive purchases in Dubai this year are US$ 20 million for a penthouse on The Palm, US$ 17 million for a villa in Sector V, Emirates Hills, and the same amount for an apartment in Il Primo, Downtown.

Hilton Worldwide has announced the launch of Hampton by Hilton Dubai Al Barsha, its second such entry in the emirate. The agreement, between the hospitality management company and Abdullah Al Neyadi, will result in an increase in the number of affordable hotel offerings in the mid-range sector, by a further 153 rooms.

There is no doubt that gold and jewellery play an important role in the UAE economy, with precious metals and diamond trading generating 20% of the country’s total non-oil exports. In H1, total trade was 3.0% higher at US$ 49.0 billion, with the global value of trade at over US$ 350 billion. This week, the federal cabinet has approved several policies which will benefit and consolidate the country’s gold and jewellery sector. One of the main aims is to strengthen the country’s global standing by enabling the tracking of gold with international standards being introduced to enhance transparency. Such a step will lead to a positive boost for the local industry and consolidate a currently fragmented sector with the introduction of a federal trading platform that will also be responsible for the supply of gold and marketing the UAE on the worldwide stage.

It just has to be Dubai when Italian designer Antonio Vietri unveiled his latest offering as part of MIDE (Made in Italy, Designed in Emirates) Fashion Week. His latest design, The Moon Star shoes, has been priced at US$ 20 million.

DEWA has decided to select an as yet unnamed contractor to build a 900-megawatt solar power plant in Dubai. The record low bid, at US$ 0.017 cents per kilowatt-hour for the photovoltaic plant, needs further extensive study before further details are released. The plant is phase 5 of the Mohammed bin Rashid Al Maktoum Solar Park project which will generate 5 gigawatts of installed capacity by 2030. The latest bid “represents the lowest price worldwide,” and shows a marked reduction from the US$ 0.073 lowest offer for phase 4 in 2017, submitted by ACWA Power International and Shanghai Electric Group Co.

This week, DEWA also awarded a US$ 267 million contract to Ghantoot Transport & General Contracting and Ghantoot Gulf Contracting to construct their new HQ, Al Shera’a (Arabic for ‘sail’) in Jadaf. Encompassing two million sq ft, the twenty-floor building, (including a basement and four floors for parking, whilst housing 5k), will be the tallest, largest, and smartest government zero energy building in the world.

On the occasion of an official visit by Vladimir Putin, the UAE and Russia signed an agreement to boost air traffic to different cities, within the two countries; further discussions will be held in St Petersburg early next year. This move will undoubtedly expand tourism and trade links for the benefit of both countries. Currently, Russia has moved two places higher to sixth as a source market of inbound tourism for Dubai, with a 28.0% hike in tourist numbers to 678k last year. Other deals, worth more than US$ 1.3 billion, notably in the energy, advanced technology and health sectors, were made.

Among those signed by the Russian president was one with the Investment Corporation of Dubai to “explore mutually beneficial investment opportunities”, with its sovereign fund, the Russia Direct Investment Fund; it will focus on potential investment opportunities in both countries. One other major deal was ADNOC’s sale of a 5% share in the Ghasha concession to Russia’s Lukoil.

Dubai Airport Free Zone Authority posted a 7.9% hike in its H1 total value of foreign trade to US$ 21.0 billion, driven by an 11.0% hike in reexports to US$ 12.2 billion, which equates to 21.0% of Dubai’s total reexports. DAFZA also accounted for 12.0% of the emirate’s foreign trade and saw its trade surplus surge 35% to nearly US$ 3.0 billion. Trade wise, its three biggest countries – India, Switzerland and China – accounted for 50.1% of the total – with figures of US$ 3.8 billion, US$ 3.4 billion and US$ 3.3 billion respectively. So far this year, the likes of Airbus, Michelin and TNA have opened up regional headquarters.

Following the recent collapse of Thomas Cook, it is reported that Dnata has been exposed to its impact which is still being assessed. It is expected that the exposure involves “not a small amount” and will be accounted for in the Emirates Group’s airport services unit’s H1 results. The fallen tour operator, and the world’s largest travel company, was a major customer for its services such as ground-handling and catering.

A new budget airline has been announced with a JV between Etihad Aviation Group and Air Arabia forming Air Arabia Abu Dhabi. This will benefit both airlines, with improved networking opportunities and a wider range of aircraft being made available. The new carrier will operate out of Abu Dhabi International Airport and have board members from both companies who will be responsible for the new airline’s independent strategy and business mandate. Whether this results in more routes (demand) coming online for all the UAE carriers to service – or the opposite (an increased supply chasing similar demand) – remains to be seen. 

Deyaar Development posted a nine month increase in revenue – by 3.6% to US$ 132 million – with profit reported at US$ 14 million. This year, the developer opened the Millennium Atria Business Bay and Millennium Al Barsha which will deliver on-going revenue streams, as well as completing its Afnan District project in Midtown; the second of six residential districts, Dania comprising 579 apartments, should be finished by year-end.

Emirates NBD is to have a 35.4% discounted rights share offering to raise funds of US$ 1.76 billion for overseas expansion and to boost its capital structure. 758.8 million shares will be offered at US$ 2.32 (compared to its US$ 3.58 market value at 16 October). Only last month, Dubai’s biggest bank raised the cap on foreign ownership holding in its shares to 20% from 5%, with expectations that this may double to 40% in the near future.

Dubai Islamic Bank beat market estimates by posting a 1.0% in Q3 profit to US$ 341 million, as income jumped 10.5% to US$ 891 million. The country’s largest Sharia-compliant lender did see impairment charges climb 86.4% to US$ 90 million. Over the first nine months of the year, the bank reported a 20.0% growth in total income to US$ 2.8 billion, whilst profit came in 8.0% to the good at US$ 1.1 billion. The bank is focusing on future double-digit growth which will be boosted by its acquiring fellow Islamic lender Noor Bank, thus creating a Shariah lender, with US$ 75.0 billion in assets.

The DFM has introduced much needed reform for loss-making firms trading on the bourse. The rules dictate that companies posting losses in excess of 50% of their capital base need to explain the reasons for their losses and forward a detailed timetable with a plan to affect a turnaround. Those entities reporting losses of 20% or more of their capital will in future be closely monitored and will be classified and colour-coded, (yellow compared to the red for companies beyond the 50% threshold), on the DFM’s website so investors are aware of their situation.

The bourse opened on Sunday 13 October and, having gained 49 points (1.8%) the previous week, lost 30 points (1.1%) to 2780 by 17 October 2019. Emaar Properties, having nudged US$ 0.01 higher the previous week, shed US$ 0.03 to close at US$ 1.21, whilst Arabtec regained all and a lot more of the US$.0.03 lost the previous week, jumping US$ 0.10 to US$ 0.53. Thursday 17 October saw similar trading of 180 million shares, worth US$ 69 million, (compared to 175 million shares, at a value of US$ 43 million on 10 October).

By Thursday, 17 October, Brent, having gained US$ 1.23 (2.1%) the previous week, kept in positive territory, up US$ 0.81 (1.4%) to US$ 59.91. Gold, having shed US$ 14 (0.9%) the previous fortnight, was US$ 3 (0.2%) lower, closing on Thursday 17 October at US$ 1,498. 

Following a report indicating that crude inventories rose by 10.5 million barrels last week, oil fell, as the market entered an inequilibrium hiatus, with supply growing whilst demand ebbs. With the global economies slowing – and increased new supplies from the US, Brazil and the North Sea – the short-term outlook is dim, unless there is an early end to the global trade/tariff war.

Last year, Softbank raised US$ 21 billion by selling some of its shares in the market – it was estimated bankers and advisers picked up US$ 535 million in fees. Next month, Saudi Aramco is to dip its toes in the water and offer about US$ 40 billion in an IPO; the oil giant is set to pay between US$ 350 million-US$ 450 million to a group of more than 20 banks, working on its initial public offering, with JPMorgan Chase & Co and Morgan Stanley expected to be the main beneficiaries.

One of the recipients of this year’s Nobel prize for Economics, Esther Duflo, becomes not only the second woman to receive the US$ 1 million award since its 1969 inception, but, at 46, also the youngest. She shares the prize along with her husband (and her PhD supervisor), Abhijit Banerjee, and Michael Kremer. Their research, focused on poor communities in India and Africa, indicated which investments were worthwhile and also what had the biggest impact on the lives of the poorest people. In real terms it had a positive impact on the ability to fight global poverty in practice with one of their studies showing whether medicine and healthcare should be charged for and, if so, at what price.

Hunter Biden has decided to resign from the board of BHR (Shanghai) Equity Investment Fund, following fierce criticism of his role by President Trump. The 49-year old son of former US vice-president Joe Biden has denied any wrongdoing in either China or the Ukraine as a result of his connection with the Chinese Equity Investment Fund and confirmed that he did not profit from his connection.

Lina Di Falco, 54, lost her case against Emirates after claiming that the airline did not provide her with enough water on her 2015 twelve-hour flight – and she now faces potential costs running into hundreds of thousands of dollars. She had claimed that the denial of adequate water caused her to faint and fall on her flight from Melbourne and that the resultant injury led to constant pain, two months off work and the failure of her marriage.

A worrying statistic for most Australians is that the country has the world’s second largest household debt, (just behind Switzerland), equal to about 120% of the country’s GDP. In other words, household debt is 20% more than what the country produces every year. In the past twenty eight years – around the time of the country’s last recession – the debt has almost trebled and housing debt has more than doubled in real terms since the turn of the century; then, the average mortgage debt stood at US$ 109k, compared to the current level of US$ 239k.

There was good news and bad news for the Australian employment sector, with the unemployment level dipping marginally in September to 5.2%, helped by the creation of 26.2k full-time jobs and the participation rate nudging lower to 66.1%; the underemployment rate dropped to 8.3%. However, most observers expect the situation to deteriorate early next year, with the rate moving inexorably north toward the 5.5% level and moving in the opposite direction to the RBA’s 4.5% target. The next meeting of the Reserve Bank on 05 November will produce no fireworks, with expectations of a further rate cut dampened by the news.

As China’s manufacturing sector slows down, declining at its fastest rate in over three years to an annualised 1.2%, it seems inevitable that the government will introduce further stimulus packages to boost local demand. It comes at the same time that consumer prices jumped at their fastest pace in almost six years, driven, by of all things, a marked increase in pork prices brought about by the country’s hog herds being hit by African swine fever. There is every chance that China’s GDP could fall below 6.0% in Q3, as both imports and exports are being hit by the bilateral dispute with the US. Expect cuts in interest rates and increased government spending, among other stimulus measures, to be implemented shortly to help boost the slowing economy.

Following “a very, very good negotiation with China,” an optimistic Donald Trump has agreed to directly meet with Vice Premier Liu He at the White House on Friday. Earlier, the US government blacklisted 28 Chinese entities, allegedly “implicated” in human rights abuses, and also imposed additional visa restrictions for several Chinese government officials. Of that number, all but eight, (that included some of China’s leaders in artificial intelligence), were government security bureaus. This follows reports of more than a million Uighurs, and other mostly Muslim minorities, being detained in detention camps in Xinjiang province.

Not famed for their forecasting skills, the IMF have made their fifth revision, with a 3.0% 2019 global growth now expected in what is described as a “synchronised slowdown” – and the slowest growth rate in the eleven years since the GFC. The main driver appears to be a slowdown in emerging market economies, brought about by trade tariffs, increased protectionism and slowing manufacturing, along with uncertainty relating to trade and geopolitics. It is expected that there will be a minor recovery next year to 3.4% – but don’t hold your breath!

Without monetary stimulus by many central banks, the growth would have been more dire at 2.5%. More worrying, the world body estimates that 2020 growth will fall a further 0.8% if scheduled October and December tariffs are imposed. The two superpowers will see reduced growth with levels of 2.4% (for the US) and 6.1% for China. However, in a US election year, expect the incumbent president to pull out a few rabbits from the hat.

So much for the scaremongers – UK 2019 growth is expected to weaken from 1.4% to 1.2%, year on year, the same level as the EU which is expected to have the same growth level but down from its 2018 growth figure of 1.9%.

The economies of the Middle East and Central Asia will grow 0.9 per cent this year, rising to 2.9 per cent in 2020 – well down on previous estimates of 1.8% and 3.3% – and driven by the impact of US sanctions on Iran’s economy; Iran is set to contract by a massive 9.5%, compared to 4.8% last year, with inflation moving higher to 36%. Based on average oil prices of US$ 61.78 this year and $57.94 next, Saudi Arabia’s economy will trickle to a miserly 0.2% in 2019. Meanwhile, Australia – in its 29th consecutive year of economic growth – has seen its forecast cut from 2.1% to 1.7% but is still to have the fastest growth of any G7 economy, except that of the US.

There was a surprise to see a September 0.3% decline in US retail sales, as consumer confidence wanes which will probably result in a third straight Federal Reserve interest-rate cut; this follows a revised 0.6% increase posted in August. Following the news, prices on ten-year Treasuries rose and US stocks fell. The hope is that a truce in the Sino-US trade war, and no further tariff increases, would be the optimum output which would have a positive impact on US economic data and consumer confidence. There is a feeling that there has been a loss of economic momentum ahead of the 2020 re-election year.

However, there were signs of a manufacturing recovery following the battering it received earlier in the year with Donald Trump’s trade shenanigans. In Q3, US manufacturing rose 1.1%, driven by computers/electronics, autos and appliances; this was still 1.0% lower over the past twelve months. The month-long GM strike, involving 50k, has not helped figures but fortunately there are signs that a deal on the horizon could see an end to the work stoppage in the coming days.

Yet again, the many doomsayers have got it wrong when it comes to sterling, as the currency headed to its highest rate in three months on Monday to US$ 1.2682 (as well as jumping 1.7% higher to Euro 1.1489). The hike came about because of renewed hopes of a last-minute Brexit deal, initiated by a UK/Irish prime ministerial meeting, concluding that there was “a pathway to a possible deal”, and even the EU Brexit negotiator Michel Barnier speaking of a constructive” meeting with UK Brexit secretary, Stephen Barclay.

On Thursday, the pound reached its highest level – at US$ 1.29 – on news that Boris Johnson had secured a Brexit agreement with the EU Mandarins. There is no doubt that a majority of the UK population (and the financial markets) is sick and tired of Brexit and just want a quick resolution – parliament may think otherwise when they vote on Saturday. It is anybody’s guess whether we Won’t Get Fooled Again!

Easy Money                                                                   10 October 2019

The Sheikh Zayed Housing Programme has approved 522 housing assistance applications for Emirati citizens, totalling US$ 111 million; the initiative is in conjunction with housing institutions around the UAE. Encompassing three residential districts, the project includes 341 residences in Dubai’s Tolerance Village, as well as two others in Ajman and Ras Al Khaimah.

Last year, Gulf Sotheby’s UAE operations acquired SPF Realty; this month, an exit agreement sees the firm back in the hands of Ranjeet Chavan. He has been joined by three other founding members and plans to revive the brand and has targeted a sales volume of US$ 204 million in the first year of relaunch, focusing on inward investments, preferably at the premium end. Whilst acknowledging that real estate prices may continue heading south, Chavan is certain that the market will see a turnaround and a return to new peaks at some point.

Indeed, employment figures released by the Central Bank reiterates the importance of the real estate – and associated – sectors to the country’s economy. It is estimated that the realty and construction sectors account for 45.7% of the country’s workforce and that in Q2, these two sectors grew by 5.0% and 8.2% respectively, well up on the 4.4% and 4.9% growth returns seen in Q1.

Dubai Municipality has launched a PPP (private-public partnership), with French company Veiola, to build a high-tech biogas power generation plant. The Warsan Sewage Treatment Plant will use biogas to produce clean energy and aims to reduce CO2 emissions by 31k tonnes annually, equivalent to 7k homes that will convert 58k cu mt per day of biogas into electricity. Work on the 25-year project, which will reduce the annual operating costs of the sewage treatment plant by using the biogas, will commence in 2021.

Dubai residents will soon be able to hire a driver for their vehicles at an hourly cost of US$ 11; the requisite DTC app should be running by the end of the month. Another new service will allow users to request an electric Tesla vehicle, a family limo, a vehicle for people of determination, a dedicated limo for ladies or a standard limo; costs will be lower than local rivals, Uber and Careem.

This November’s Dubai Air Show expects to host 87k aerospace trade professionals and an 8.3% increase in exhibitors to 1.3k, with some major announcements expected. However, already troubled Rolls Royce has indicated that there is little likelihood of a US$ 21 billion engine order for seventy new A350 and A330s, (as well as restructured engine orders for the remaining A380s on order), being announced at the show in  November; the UK engine-maker cites the main reason being concerns involving the price and the performance of the planes. This comes after Emirates indicated that it would no longer accept jets that did not meet specifications given by Airbus, Boeing and their engine providers. It also has forty Boeing 787s on order and the airline is concerned about the engines’ reliability and that ongoing issues had not been resolved.

It is estimated that the air transport sector contributes 13.3% to the UAE GDP, equating to US$ 47.4 billion, and adding 800k jobs. IATA estimate that if the government continues with its current positive agenda for the sector, the market could generate an extra US$ 80 billion to the GDP and add a further 620k new jobs by 2037.

The Federal Tax Authority will introduce an excise tax on smoking devices and sweetened beverages as from 01 December 2019; it has requested that producers and importers register early to avoid late registration fines. In October 2017, the FTA introduced a tax on harmful goods, (encompassing 1.7k items), such as soft and energy drinks and tobacco – with duties of 60%, 14% and 26% respectively.

H1 saw Dubai post a 5.0% hike in non-oil foreign trade to US$ 184.2 billion (and 87% higher over the past decade). Despite a tough global trading environment, Dubai has managed to increase both exports (17.0% higher at US$ 20.7 billion) and reexports, up 3.0%, at US$ 57.2 billion. Imports rose 4.0% to US$ 106.3 billion. Trade volumes climbed 31.0% in H1 to 56 million tonnes, with exports, reexports and imports higher by 46%, 39% and 26% at 10 million, 9 million and 38 million tonnes.

It is reported that the UAE, along with Switzerland and the Marshall Islands, will soon be removed from an EU blacklist of countries deemed to be tax havens. It was only last March that the country was returned to the list, first drawn up in 2017, much to the dismay of the government. According to local officials at the time “this inclusion was made despite the UAE’s close cooperation with the EU on this issue and ongoing efforts to fulfil all the EU’s requirements”.

A US$ 436 million Etihad Railway contract has been awarded to Hitachi Rail, relating to systems and integrations work for the UAE’s national railway’s second phase. It involves design and build of the power distribution network and electronics subsystems, that runs for 800 km. This the latest major contract seen this year following March awards totalling US$ 409 million to extend the network by a further 605 km and deals of US$ 1.2 billion in July for lines stretching 216km and 94 km, connecting the network to Khalifa Port and Khalifa Industrial City, as well as to Jebel Ali Port.

To celebrate, and in keeping with, the UAE’s Year of Tolerance, the Ministry of Human Resources and Emiratisation has cancelled fines, prior to 01 August, involving 27k companies and 12k workers. Furthermore, Jebel Ali Free Zone came to the party, by waiving US$ 10 million in fines owed by businesses within the free zone.

Troubled Arabtec Holding has secured a US$ 76 million contract through its wholly owned subsidiary, Target Engineering. The Saudi Aramco deal involves the expansion and upgrade of a water disposal facility at its Qatif’s gas oil separation plant.

The bourse opened on Sunday 06 October and, having shed 93 points (2.5%) the previous three weeks, gained 49 points (1.8%) to 2810 by 10 October 2019. Emaar Properties, having declined US$ 0.12 the previous fortnight, nudged up US$ 0.01 to US$ 1.24, with Arabtec, gaining US$.0.03 the previous week, losing that gain and down US$ 0.03 to US$ 0.43. Thursday 10 October saw improved trading of 175 million shares, worth US$ 43 million, (compared to 80 million shares, at a value of US$ 24 million on 03 October).

By Thursday, 10 October, Brent, having shed US$ 6.63 (10.7%) the previous fortnight, regained some of that loss, up US$ 1.23 (2.1%) to US$ 59.10. Gold, having shed US$ 9 (0.9%) the previous week, was US$ 5 (0.4%) lower, closing on Thursday 10 October at US$ 1,501. 

US sanctions are beginning to hurt the Iranian economy, as China National Petroleum Corp pulls out of a US$ 5 billion deal to develop a portion of Iran’s massive South Pars offshore natural gas field; the 2015 agreement came after the global nuclear deal  and initially involved Total SA, CNPC and Iran’s PetroPars, with shares of 51.1%, 30.0% and 19.9% respectively. Total had earlier withdrawn from the agreement over US sanctions so now there are no international parties to support this venture. This latest episode is bad news for the sector that needs international partnership to utilise the fact that it has the world’s second-largest known reserves of natural gas and fourth-largest oil reserves.

Samsung Electronics has announced an expected 56.2% slump in Q3 profits to US$ 6.4 billion, (on the back of a 5.3% fall in revenue), driven by a dismal performance in the global chip market. With the decline in semiconductor prices, and weakened demand for its mobile devices, this will be the fourth straight quarter of profits heading south. It still has a 23% share of the global smartphone market and is ahead of Huawei, Oppo and Apple in fourth. Although the company gained some market share, because of the US trade ban on Huawei with its mid-to-low Galaxy A handsets, and increased demand for its OLED display panels, it has suffered from a trade war between Japan and South Korea, stemming from World War II disputes.

A 40-year old independent family travel agency has agreed to acquire the 555 UK outlets of the fallen Thomas Cook Group; Hays has already recruited 421 of its former staff members, with many more expected to join their ranks. This comes the same week that the government completed the country”s biggest peacetime repatriation, returning 140k stranded Thomas Cook customers from overseas locations.

The week that many parties were set to sign an agreement to formally join Facebook’s controversial Libra Association, PayPal pulled out “to continue to focus on advancing our existing mission and business priorities”. This is a severe blow to Facebook Inc’s efforts to develop a digital currency which has already faced severe government pressure and criticism. Despite the withdrawal, the payments company remains committed “to remain supportive of Libra’s aspirations and look forward to continued dialogue on ways to work together in the future”. In other words, glad to get out when it can.

Having culled 4k posts in August, 2% of its labour force, (as well as seeing a political resignation of its chief executive, John Flint), there are reports that HSBC may be laying off a further 10k; much of this will see the loss of high-paid roles.  Like other banks, it is struggling with almost negative interest rates, the tariff war and even Brexit. Interim boss Noel Quinn thinks this is an opportune moment to reduce its cost base, a large proportion of which is payroll driven. All this is despite H1 profit jumping 18.6% to US$ 8.5 billion – what would have happened if profit levels had dipped? There has been recent downsizing by the likes of Commerzbank, Deutsche Bank and Société Générale with job cuts of 4.3k (10% of the payroll), 18k and 1.6k respectively.

India has cut interest rates for the fifth time (by a total of 135 bp) this year in a continuing bid to boost its slowing economy and to ensure that inflation levels remain within the 4% target; the 25bp reduction sees the benchmark repurchase rate at 5.15%. The central bank also reduced its 2019 growth forecast to a seven year low of 6.1%, down from a previous estimate of 6.9%. The markets were not impressed, as the benchmark stock index and the rupee fell, along with ten-year bonds rising to 6.65%. There is no doubt that further cuts are needed and will be seen in Q4.

One area of many concerns for the Indian economy is the lack of liquidity to fund construction of apartment complexes, not helped by last year’s default of one of the country’s shadow banking sector’s leading lenders, Infrastructure Leasing & Financial Services. Now the loans from the bloated shadow-banking sector, that were fuelling the property boom, have all but dried up, leaving a total of US$ 63 billion of stalled residential projects across the country. The end result sees an offload of properties at discounted prices, developers unable to fund construction and stalling on repayments as well as shadow banks failing, all because cash flow has dried up.

In September, figures showed that the US unemployment rate had fallen to a 50-year low – down to 3.5% from 3.7% – with a revised168k and 136k jobs created in August and September. It is argued that 100k new jobs are needed each month to keep up with growth in the working-age population. Although there was weak data, with manufacturing activity hitting a decade low, along with a sharp slowdown in services industry growth (at a three-year low), the employment figures were a counterbalance easing immediate recession worries. The US economy has been in continuous expansion for the past eleven years and to keep this trend going, it seems that a further interest rate cut is inevitable this year, with a possibility of a second one in December.

Several former colleagues have gone to war with Mario Draghi, criticising his latest monetary-stimulus initiative and the ECB’s stance to its inflation goal. They believe (quite rightly) that “interest rates have lost their steering function and financial stability risks have increased. The longer the ultra-European Central Bank President’s low or negative interest rate policy and liquidity flooding of markets continue, the greater the potential for a setback.” They do not agree with a myriad of issues, including the financing of governments, through asset purchases, which restarted last month, arguing that with low rates, it keeps weak banks and companies afloat. Other concerns include Draghi’s mistaken diagnosis and approach to complying with the price-stability mandate and the adverse effect of negative interest rates on the entire financial sector.

One has to agree with Oswald Gruebel, once a major figure in the Swiss bank fraternity, who has criticised negative interest rates. He reasons that negative interest rates point to the fact that “money is not worth anything anymore,” and that the financial industry will continue to shrink as long as such rates continue. The world’s economy is undoubtedly suffering – and will continue to do so –  from too much Easy Money!

A Spaceman Came Travelling (Hazza Al Mansouri )          26 September 2019

More than one hundred developers, consultants and architects showcased at this year’s three-day Cityscape Global exhibition, which will close tomorrow – 27 September. Developers are hoping to incentivise potential buyers at this year’s meet by offering discounts, fee waivers and other deals as the market for property purchases remains soft. Developers participating in the event include Aldar Properties, Arada, Nakheel, Azizi Developments and Sobha Group, among others. Business may be boosted by the fact that a 500-strong delegation of North American agents and brokers, with combined 2018 sales of US$ 2.2 billion, are in attendance, as part of the show’s strategic partnership with the Dubai Land Department and Dubai-based Century 21.

It is reported that since the 02 September inception of a higher committee to oversee the realty sector, there has been 134% hike in Dubai’s real estate transactions. A new law, applicable to all major projects and jointly owned properties in Dubai, has been enacted to oversee the upkeep of “jointly owned properties” in Dubai, including the way facilities management companies bill clients. Such firms will have to submit six-monthly reports to Rera on the management of the property and common areas and will also have to obtain insurance coverage for each project. The agency can also appoint another FM company, in case there has not been proper maintenance of the common areas.


A US$ 1.4 billion JV between Meraas and Brookfield Asset Management will see both parties managing and expanding a portfolio of local retail assets, including La Mer, City Walk and The Beach in Dubai. One of the main aims of the exercise is to “leverage Meraas’s regional brand recognition and experience in curating lifestyle-focused mixed-use developments” with the Canadian company’s worldwide reach utilising US$ 385 billion of global assets, including US$ 194 billion of real estate.

Construction has begun on phase one of the UAE’s new 370-hectare Riviera project in Ghantoot, with Abu Dhabi-based developer Imkan joining forces with Nael & Bin Harmal Hydroexport Co.  Al Jurf, a second-home destination, with 3.4km of azure beachfront, will comprise three distinct districts – Al Jurf Gardens, Jiwar Al Qasr and Marsa Al Jurf. Al Jurf Gardens, with 293 residential villas and land plots, along with a wellness clinic resort, a private beach, a marina and a community centre, is scheduled for a 2021 completion.

Dubai was the ME launch location for Delta Hotels by Marriott, with the opening of Delta Hotels by Marriott Jumeirah Beach. The property, with 360 keys, has a range of rooms, suites and serviced apartments, along with three multi-function rooms and a business centre spread over 145 sq mt of event space.

It is forecast that the US$ 680 million Dubai’s Deep Tunnel Project will be ready one month before the October Expo 2020 opening. Currently 65% complete, and 10 km long covering 490 km, it will drain rainwater in the Airport City and Expo 2020 areas. The three final foundation stages will use about 55k cement pieces in the tunnel, each weighing 2 tons, along with the installation of 4.4k huge metal rings. To date, four million man-hours have been utilised in what is one of the biggest such projects in the world.

Farnek has won a five-year contract from Dubai Airports to carry out the cleaning of Terminals 1 and 2, Concourse D, and Cargo & Logistics at DXB, as well as Dubai World Central. The contract covers the cleaning services management of landside and airside facilities, and also managing the passenger baggage trolley services. The facilities management company expects to utilise 800 of its 5k employees on this contract.

DAE has finalised a US$ 1.4 billion multi-year deal, with an unnamed hedge fund, to source and manage aircraft. Dubai Aerospace Enterprise’s Investor Services platform will be responsible for acquiring narrow-body and wide-body aircraft, 25% of which have already been sourced. This deal brings the value of its managed assets to US$ 2.7 billion, with a target of US$ 5 billion over coming years.

As the country’s working population reached 5.1 million by the end of June 2019, 51.6% of that total were employed in Dubai and 26.9% in the capital. The 0.5% hike in Q2 was driven by the real estate sector, which has seen a 5.0% growth in numbers over the past year.

Although overseas remittances topped US$ 11.6 billion in Q2, they were still 4.2% lower than the same quarter last year; this was attributable to a slowdown in employment. In 2018, US$ 46.1 billion (up 3.0% over 2017), was sent overseas, with India accounting for 37.2% of the total, despite only accounting for 27.5% of the country’s 9.6 million population. Pakistan, Philippines, Egypt and the UK took the other four top spots, with totals of 10.5%, 7.2%, 6.3% and 3.8% respectively.

The UAE’s waste management sector witnessed further consolidation this week with the Averda acquisition of rival Zenath Recycling & Waste Management; no financial details were readily available. The sale involved Zenath’s 1k customer base, 150-srong labour force and assets including eleven compactors, eleven chain loaders and nine hook loaders. It will allow Averda to enhance its long-term value and market position in a fast-growing waste management industry. In August, there were reports that the Dubai-based company was in preliminary discussions about a possible London Stock Exchange IPO that could value it at US$ 870 million.

It seems that Emirates will have to delay the introduction of a fourth class – premium economy – because of a possible delay in the delivery of the new Boeing 777x jetliner, due to problems with its General Electric-made turbines. Because the first delivery, of the 150 planes that the airline has ordered, could be pushed back from its original June 2020 date, the new class could start with the Airbus SE’s A380 in December 2020.

Emirates also expects that H1 profits to September will be better than those reported over the same period in 2018 – and this despite the 45-day closure of the southern runway at Dubai International earlier in the year. In 2018, the H1 figures had shown a massive 86% fall in profits, driven then by higher oil prices and a stronger greenback. Since then, the end of the Airbus A380 programme, and a sluggish global economy, have seen the airline introduce a major strategic review, including staff cuts.

As part of the UAE-India food corridor project, it is estimated that UAE companies will pump in over US$ 7 billon, US$ 5 billion of which will be in various mega food parks, (in locations such as Pawarkheda) and a logistics and warehouse hub in Itarsi, with the balance for contract farming. The project, coordinated by the Emaar group and employing up to 200k, will involve food security for the UAE. This investment will help reduce the estimated 30% wastage that is caused by the lack of appropriate infrastructure for storage, processing and transportation in India – a country that grows enough to feed its 1.3 billion burgeoning population. It looks as if this is a win/win for both parties – the UAE can buy this food at a cheaper price, while Indian farmers get a comparatively better price for their crops because of the reduction in wastage levels.

Following August’s UAE launch of its RuPay card, National Payments Corporation of India is planning to introduce its Unified Payments Interface digital payment system to the UAE. UPI, introduced in India three year ago, is a mobile platform that instantly transfers funds between bank accounts, makes purchases and remits money. The developer is confident of its success in the region more so because of the large number of expat Indians in the country with it being the number one trade partner for the UAE and the UAE the third-largest trade partner for India.

Still not fully recovered from the 2010 property crash, Dubai banks are facing a double whammy of falling home prices, (down 27% by some estimates over the past five years) and a growing non-performing loans book which stood at 4.99% of gross loans at the end of last year, compared to 4.01% in 2017. This compares to 1.5% in Saudi Arabia and 1.9% in Qatar at the end of 2018. The price downturn is attributable to a raft of factors, some of which are outside the government’s control, including lower oil prices, geopolitical tensions and a strong greenback (dirham); other issues in play are an oversupply (which is now being addressed) and weaker consumer confidence. It is estimated by Fitch that 20% of Q1 loans were incurred by real estate and construction – and this figure may be higher if retail mortgage lending, and some lending to investment companies that finance developers, are added.

Fitch also consider that a “significant portion” of government loans of US$ 23 billion, set to mature in 2021, may have to be restructured. Hopefully, we are some way off the 2009 GFC position, when state-owned Dubai World restructured US$ 23.5 billion of debt and property developer Nakheel PJSC had $10.5 billion of unpaid bills on its books.

A recent Dubai Chamber report studied the banking challenges faced by new and emerging businesses and found that nearly 65% of the country’s entrepreneurs surveyed believed that banking was the first challenge they faced, with opening a bank account taking up to three months in some cases. Interestingly, this week two major Dubai banks have introduced some sort of digital banking for SMEs.

Emirates NBD launched the E20, the country’s first digital business bank for entrepreneurs and SME businesses, as well as for sole proprietors, freelancers, gig economy workers, fintechs and insurtechs. It will help customers access banking services seamlessly and conveniently, and reduce time spent on banking to a minimum.

Mashreq’s offering of NeoBiz, with the motto ‘Built for Business’, will see the implementation of key services, including digital onboarding, transparent and simplified products, digital assistant and full transaction capability online, targeted at start-ups and young businesses.

There was good news from the UAE central bank which revised up its 2019 growth forecast from the last one in May of 2.0% to 2.4%, of which the non-oil growth would be 1.4% and the oil sector at 5.0%; the Q2 growth was 2.2%, with the non-oil sector posting a 1.5% hike (a major improvement on Q1’s 0.3%). This improvement should manifest itself in rising public and private spending, along with higher investment prior to Expo 2020. In Q2, the PMI pointed to an improvement in economic sentiment – at 58.2, its highest level since 2014, with Q2 employment also on the rise, up to an annualised 1.0% (compared to just 0.1% in the previous quarter). The doom and gloom expat merchants should compare this growth with the likes of say UK, South Africa, Germany and Italy with lot lower levels at 1.2%, 0.6%, 0.4% and minus 0.1%; there is no barbed wire around Dubai International to stop such people leaving!

The Q2 Dubai Economy survey indicates that the Composite Business Confidence Index (BCI) was 2.2 points higher at 114.9, boosted by Expo 2020, with new export markets and projects being launched. The survey also indicated that 83% of Dubai businesses rated their situation as ‘good’ or ‘stable’, as there was a marginal improvement, at 46%, in the number of companies expecting an uptick in their business situation. One worrying factor was to see hiring intentions continuing to soften.

The bourse opened on Sunday 22 September and, having shed 71 points (2.5%) the previous fortnight, lost a further 22 points (0.8%) to 2798 by 26 September 2019. Emaar Properties, having dipped US$ 0.04 the previous week, took a US$ 0.08 dive to US$ 1.24, with Arabtec, regaining the US$.0.03 lost the previous week, up at US$ 0.47. Thursday 26 September witnessed trading returning to dire levels of only 78 million shares, worth US$ 45 million, (compared to 310 million shares, at a value of US$ 142 million on 19 September).

By Thursday, 26 September, Brent, having gained US$ 4.02 (6.7%) the previous week, due to the attacks on two Saudi oilfields, shed US$ 1.76 (2.6%) to US$ 62.74. Gold, having lost US$ 30 (2.0%) the previous fortnight, moved US$ 8 (0.8%) higher, ending on Thursday 26 September at US$ 1,515. 

Brazilian police are expected to bring charges against mining giant Vale and German safety firm Tüv relating to January’s dam collapse that left 248 dead. Both companies have been accused of falsifying documents, claiming that the dam had been safe and stable that resulted in the country’s worst ever industrial accident. The mining company has already been ordered to pay compensation for all damages.

Yet another case of unauthorised trades by an employee has left the financial world pondering on what went wrong. This time, Japanese trading house Mitsubishi Corp has lost US$ 320 million from its Singapore-based subsidiary. It seems that the person involved was hired “to handle its crude oil trade with China”, but “was discovered to have been repeatedly engaging in unauthorised derivatives transactions and disguising them to look like hedge transactions since January of this year”. Fortunately for the Japanese trading house, and following investigations of other group companies and in-house departments, it seems that this was a lone wolf operation. This was not the first such fraud, (only last year two top officials at Chinese firm Unipec lost $656 million), and will not be the last.

Under strong boardroom pressure, WeWork co-founder Adam Neumann, has been ousted as chief executive but will stay on as chairman. The nine-year old company’s investors were set for an apparent golden nest egg, with an expected US$ 50 billion September IPO, only to see its value fall to US$ 10 billion for a myriad of reasons; these included Neumann’s loose and unconventional approach to corporate governance, various examples of conflicts of interest and rumours detailing drug/alcohol use within the organisation. The fact that the company had not made a profit may have also influenced decision-makers.

Ericsson is to make a US$ 1.2 billion provision to cover the costs of resolving a US corruption investigation. The Swedish telecoms equipment maker has been in discussions with US authorities over the past six years to resolve several breaches of its code of business ethics covering operations in six countries – China, Djibouti, Indonesia, Kuwait, Saudi Arabia and Vietnam. The company will take the “hit” in its Q3 results, set to be announced next month, and concurred that there had been “a failure to react to red flags and inadequate internal controls which enabled a limited number of employees to actively circumvent internal controls for illegitimate purposes.”

Early Monday morning, the inevitable happened as the 178-year old Thomas Cook went into liquidation, leaving 22k jobs at risk worldwide, of which 9k are in the UK. The Civil Aviation Authority (CAA) is coordinating what will be the country’s largest peacetime repatriation, codenamed Operation Matterhorn, as the UK government is left to fly around 155k customers from 18 countries back home. The company was left burdened with a debt of US$ 2.1 billion. Meanwhile, Condor, the German arm of Thomas Cook, was rescued with a last minute US$ 300 million government bailout, with their staff cheering the news and applauding Condor’s chief executive, Ralf Teckentrup.

No such celebrations for the former UK bosses of the stricken travel firm, as news filtered through of them receiving pay-outs, worth more than US$ 44 million over the past 12 years. Who can forget Manny Fontenla-Novoa, who received US$ 22 million over his four-year tenure, ending in 2011, that saw the company rake up debts of over US$ 1.2 billion (and almost collapse) and 2.8k losing their jobs following the merger with MyTravel? Then Harriet Green was paid nearly US$ 6 million (plus a share bonus of US$ 7 million) for less than three years at the helm.

Meanwhile, Australia has also seen a travel company hit the buffers this week, with Tempo Holidays and Bentours being placed into voluntary administration. Only a few days earlier, its head company, India-based travel giant Cox & Kings, announced that it had shut down its Australian and New Zealand operations. One poor traveller, who had spent over US$ 30k on a worldwide tour, was dismayed to find that although he had taken out insurance, page 60 of the PDF document, explaining his coverage, stated there was no cover for insolvencies! God bless insurance companies!

A study by the Australian National University suggests directors are illegally using insider trading to make personal profits on ASX trading. It is almost inevitable that this practice is not only restricted to Australia, with directors using information that is not available to the general public. The university looked at 50k directors’ trades, covering a decade to 2015, and concluded that insider trading is “rife” and “that there is significant buying pressure by directors following bad news, and a lot of selling pressure following good news.”

The UK offshore wind power is proving to be a major success story, with new upcoming projects capable of powering more than seven million homes. Apart from being environmentally friendlier than electricity (which powers just 15% of household energy, some way behind petrol, diesel and gas), it is more economical. For example, the cheapest operator will provide power for as low as US$ 48 per megawatt hour, less than half of the US$ 115 expected from Hinkley Point C, when it opens in 2025. It is estimated that over the past two years, the cost of offshore wind has plummeted some 30%.

There is no doubt that there is heavy state involvement (and high public sector debt) by GCC governments in boosting their individual country’s economies. Fitch has raised concerns that there is a significant and growing contingent liability facing some GCC government-related entities, with non-bank GRE debt ranging from 12% of GDP in Kuwait to 32% of GDP in Oman. Debt of government-related banks – wholesale or interbank funding, excluding customer deposits – ranged from Bahrain’s 9% of GDP to Qatar’s 39% last year. More worryingly is the potential scope of contingent liabilities from the banking sector with assets ranging from 74% of GDP in Saudi Arabia to 209% in Bahrain.

Indian Finance Minister Nirmala Sitharaman surprised the market by slashing corporate tax rates from 30% to 22% in a move to try and boost investment and growth in the country’s faltering economy, currently standing at a six-year low. The 8% reduction will apply to companies that do not seek exemptions, whereas those that do so will see the tax rate drop from 35% to 25%; new companies will have to pay 15%, down from the existing 25% rate. Already, the Central Bank has introduced four rate cuts, with little success, and has seen domestic spending slow markedly, despite the falling rates which are at a decade low.

Latest figures confirm that South Africa is entering its 70^th straight month of a weakening cycle in September. All the indicators continue to head south, including economic growth and business confidence (at a three-decade low). The country’s economy has been in a quagmire, as growth has never been above 2.0% since 2013, with 2019 probably recording levels of less than 0.6%. The many cries for government action, to lift business confidence and boost growth, appear to have fallen on deaf ears. Meanwhile, Africa’s most industrialised country will continue to stutter on the back of rising debt, concern about the impact of Eskom Holdings SOC Ltd on the nation’s finances and a 29% unemployment rate.

Just like the UK, US retailers are facing difficult times as can be seen from latest data showing that, in H1, 7k stores have already closed their doors – a major increase on the 6k posted for the whole of 2018. There are so many reasons, apart from the usual suspects of trade tariffs and increased online competition, including tax reforms, poor weather and the historic government shutdown earlier in the year. The majority of shop shutdowns were seen in apparel specialty stores, footwear and general merchandise stores; clothing stores accounted for 36% of H1 closures (compared to 18% the previous year), followed by footwear – 26% compared to 8% in 2018 – and general merchandise (14% cf 2% in 2018). It is estimated that the higher tariffs will cost the average US household US$ 831 a year, money that would have previously been spent on retail sales.

As the Fed continues to cut rates, the impact is being felt in the US realty sector, with August home sales rising to a seventeen-month high, as mortgage repayments become cheaper. The 30-year fixed mortgage rate has dropped to around 3.5%, from a more than seven-year peak of over 4.9% late last year. Monthly sales increased 1.3%, equivalent to an annual rate of 5.5 million units. Buying activity has also been boosted by an economy with low unemployment, rising wages and slower house price inflation. By August, there were 1.86 million homes on the market, (down 2.6% on the year), with the median price of a house 2.6% higher at US$ 278k.

25 September will go down as a milestone date in the country’s history, with 35-year old Hazza Al Mansouri becoming the first Emirati astronaut – and the first Arab – on the orbiting laboratory. The astronaut joined Russia’s Oleg Skripochka and NASA astronaut Jessica Meir onboard a Soyuz rocket from Baikonur in Kazakhstan for an eight-day working space odyssey. The country rightly revels in this mega achievement as A Spaceman Came Travelling.

Suspicious Minds                                                      19 September 2019

A new law has seen the Real Estate Regulatory Agency take over responsibility for regulating and overseeing all Dubai developers’ escrow accounts, with management being carried out by accredited financial institutions. Rera will also govern the development, brokerage and management of real estate, with the aim of the exercise to provide “a secure environment to protect the rights of developers and investors”. More importantly, it will also have exclusive rights for policies designed to balance supply and demand. At the same time, the Dubai Land Department will carry out work, formerly done by Rera, for registering real estate rental contracts. These regulatory changes can only be for the good in such a soft market as the rights of both developer and investor become better defined.

Property Finder estimates that 21.0k residential units were completed in H1, with a further 38.4k more than 85% completed and expected to be ready for delivery before the end of the year. That being the case, it would mean a total of 59.4k units being handed over in 2019 –  a far cry from the average 23k per annum seen over the past four years.

For the five months to May 2019, US$ 28.9 billion worth of real estate transactions were recorded in Dubai, compared to 53k real estate deals, valued at US$ 60.8 billion, for the whole of 2018. Encouragingly, 66% of buyers (and 57% of transactions) involved were new investors. Business Bay was the busiest location in 2018 accounting for 4k transactions amounting to US$ 3.0 billion. The data indicates that new launch activity is actually declining – a trend that, if continued, would help balance the supply/demand conundrum. From 2013-2016, as new lease contracts decreased steadily, there was an increase in renewed lease contracts; over the next two years, both registered increases, with new lease contracts rising at a higher rate. This may point to an increasing number of new properties finding tenants.

In 2018, Dubai’s GDP jumped 1.9% to reach US$ 108.4 billion, with the real estate sector accounting for 13.6% of the total (6.9% in 2017) and construction contributing 6.4% to the total (6.2%, a year earlier).

Dubai Maritime City announced that construction has started on phase one of a US$ 30 million commercial precinct project that will include retail, residential, office towers and a promenade. Located in the Mina Rashid area, it is expected to be completed within eighteen months.

Brothers Ehab and Hani Sulaiman Elyoussef unveiled their iconic “Dubai Brand Logo” real estate project, designed to mirror the Dubai Brand Logo. The US$ 136 million residential and commercial project, stretching over 1.5 million sq ft, will result in the world’s largest logo and was inspired from the vision and directives of HH Sheikh Mohammed bin Rashid Al Maktoum.

So much for talk of an economic slowdown in the emirate when Symmetry Gym announces a 28-day intensive fitness package costing US$ 10k. Dubai’s most expensive gym, established eight years ago, boasts about 100 members, with monthly rates ranging from US$ 1.2k to US$ 2.4k for the Extreme Fitness Recharge plan. Amir Siddiqui, the centre’s founder, seems to have the right approach and has only targeted the top end of the market which at that level he considers to be almost recession-proof.

HH Sheikh Mohammed bin Rashid Al Maktoum has completed the comprehensive evaluation report of services in 600 government centres; this will become an annual transparent exercise. He has delivered on his promise of last month and has named the top five and shamed the bottom five government centres. Management at the worse performing offices were summarily dismissed, whilst at the other end of the ladder, bonuses, equivalent to two months’ salaries, were handed out to the team members. He directed immediate management replacement, in the worst centres, with highly capable leaders, and warned that he would visit again within a month to see if improvements had been made. The Dubai Ruler added “we have the courage to evaluate ourselves and our teams because the cost of hiding mistakes is much higher”.

Maybe Dubai entrepreneurs could take a leaf out of several small tourism towns in Western Australia that have gone into aquaculture that has provided a working option to traditional seasonal work. The WA government, which has laid the foundations for the industry’s growth, estimates that it will create an additional 30k jobs over the next four years. The abalone industry is now the biggest single employer in SW coastal towns such as Augusta and Bremer Bay. 95% of the abalone from Augusta is exported to Asian markets. The influx of permanent employment – rather than seasonal work – has provided an economic lifeline to coastal communities.

There is no doubt that the emirate has a sustainable, high quality infrastructure and for further enhancements, Dubai’s Department of Finance is to establish a dedicated unit to focus on public-private partnerships. Over the coming years, it is expected that the government and private sector will combine on a number of projects, valued in the billions of US$, so Dubai can achieve its ambitious targets set out by the Dubai Plan 2021 and the Dubai Industrial Strategy 2030.

More disappointing news for Dubai hoteliers in August as STR preliminary figures show declines in occupancy levels, average daily rate and revenue per available room down 0.2% to 68.5%, 12.5% to US$ 106 and 12.6% to US$ 73 respectively. However, both supply and demand were higher in the month rising 7.6% and 7.4%.

Two-year old Noon hopes to attract 25 million unique shoppers as part of its next ‘Yellow Friday’ sales push, which will this year run from 24 to 30 November. The portal, backed by Mohamed Alabbar and Saudi Arabia’s sovereign wealth fund Public Investment Fund, will be offering deals with up to 80% discounts. Last year, it saw an eightfold increase in revenue and the number of items purchased per basket 50% higher. There are reports that the US$ 1 billion e-commerce player could go public within five years.

Khaldoun Tabari, the former chief executive officer of Drake & Scull International, has claimed that accusations of financial violations against him are an attempt to find a “scapegoat” for rising losses; last year, fifteen separate complaints against their former CEO were filed with the public prosecutor by the firm. Since then, he has had his local bank accounts frozen and a travel ban issued while he was overseas. The case is still under review, as the authorities await a report from an expert committee, with Bloomberg indicating that the sum involved is over US$ 272 million (one billion dirhams).

Emaar Properties has signed the final terms relating to the issuance of a US$ 500 million sukuk – a ten-year Islamic bond with a 3.875% return; the developer is looking at issuing a further US$ 1.5 billion in the coming years.

The bourse opened on Sunday 15 September and, having dipped 3 points (0.1%) the previous week, lost 68 points (2.4%) to 2820 by 19 September 2019. Emaar Properties fell US$ 0.04 to US$ 1.32, with Arabtec US$.0.03 lower at US$ 0.44. Thursday 19 September witnessed improved trading conditions of 310 million shares, worth US$ 142 million, (compared to 98 million shares, at a value of US$ 51 million on 12 September).

By Thursday, 19 September, Brent, having gained US$ 0.06 (0.1%) the previous week, jumped US$ 4.02 (6.7%) higher to US$ 64.40. Gold, having shed US$ 30 (2.0%) the previous week, ended on Thursday 19 September flat at US$ 1,507. 

Two Saudi oilfields have been targeted, leading to half of Saudi’s oil production (and 5% of global production, equivalent to 5.7 million bpd) being affected. It is still early days since the weekend attack but there is every likelihood that it could lead to a delay in the massive Aramco planned IPO to debut in November on a local stock market before being listed internationally next year. JP Morgan had already been appointed to lead the initial listing, with the whole company being valued at US$ 1 trillion. Amazingly, 50% of the “lost” capacity was restored by Tuesday.

Airbus forecasts that air traffic will grow by 4.3% every year until 2039 which will lead to the number of planes doubling over that period to 48k; this will comprise 39.2k new jets, with the balance from the current fleet. Additionally, this will result in the need for 550k new pilots and 640k additional technicians.

Now that Cobham shareholders have agreed to a US$ 4.8 billion takeover bid by US private equity firm, Advent International, the UK government has “issued an intervention notice on the grounds of national security”. The Competition and Markets Authority will have to report by the end of next month; since 2002, the government body has investigated nine takeovers, on the grounds of national security concerns, and none have been blocked to date. The Dorset-based company, that employs 10k, pioneered technology enabling the mid-air refuelling of planes and is also involved in electronic warfare systems and communications for military vehicles. The fact that it is a world leader in mid-air refuelling may not be enough to stop the deal, although strings will be attached.

Thomas Cook is hoping that 75% of its bondholders back the takeover by Chinese firm Fosun Tourism, despite some lenders likely to vote against the terms of the agreement. The troubled travel firm posted a US$ 1.8 billion H1 loss and issued three profit warnings over the previous twelve months, as it struggles to reduce its debt pile. It has been hit by a double whammy of on-line travel agents and low-cost airlines, as well as last summer’s heatwave, potential customers undecided about travel plans due to Brexit worries and geo-political unrest in several places including Turkey.

It seems that the eleven-year old Airbnb is considering an IPO as early as next year. Having disrupted the hotel and travel industry, the “unicorn” would hope that its share value would not fall like the ride-hailing services Uber and Lyft did straight after their companies went public. No concrete details were readily available.

Another disrupter, Aldi is planning a US$ 1.2 billion investment splurge in the UK over the next two years, as plans unfold to raise the number of stores from 840 to 1.2k before 2024. The German discount supermarket group, which saw profits drop 26% last year, is in expansion mode and is not afraid to sacrifice short-term gains for sales growth, store openings and new customers; in 2018, its customer base increased by 800k to 16.6 million and sales by 8.1% to US$ 11.6 billion, whilst its share of the UK market jumped to 8.1%, becoming the country’s fifth biggest supermarket – still behind but fast catching Tesco, Sainsbury’s, Asda and Morrisons.

Faced with over 2.6k lawsuits, accusing it of fuelling the US opioid crisis, US drug-maker Purdue Pharma has filed for bankruptcy protection, with the board approving the Chapter 11 filing on Sunday. The company, owned by the billionaire Sackler family, had already reached a deal with 24 US states but still faced opposition from the remaining states who were against the proposed settlement. The family has agreed that the money raised by the dissolution (thought to be in the region of US$ 12 billion), plus a further US$ 4.5 billion from their personal wealth, will go towards settling the lawsuits.

In a bid to boost the flagging Indian economy, by helping exporters and easing overseas borrowing norms for some housing projects, finance minister Nirmala Sitharaman has introduced a raft of measures, totalling US$ 7.0 billion. The reimbursement of taxes and levies on export promotion will result in the “loss” of US$ 7.0 billion in revenue. Exports continue to head south, and returns would be even worse if it were not for the weak rupee. Whether these measures will help to improve the unemployment rate, (currently at its highest level in 45 years), car sales at its worst on record, and to boost economic growth, which at 5.0% in Q2 was at its slowest pace in over six years, remains to be seen.

Because carmakers continue to refuse to share technical information with independent mechanics, as is the norm in the US and Europe, Australian car owners are paying an extra US$ 1 billion every year. Figures from the AAA point to the fact that a standard service could cost 30% more at a dealership than at an independent outlet. This is despite the fact that car-makers made a voluntary data-sharing agreement in 2014 and that the federal government agreed in May 2018 that reform of the sector was a priority.

Australia’s economy is indeed slowing, as indicated by latest unemployment figures again nudging higher, hitting 5.3% last month, compared to 4.9% in February; the number of unemployed stands at 717k. NSW posted the lowest return at 4.3%, whereas South Australia recorded the highest at 7.3%. In August,15.5k full-time jobs were lost as 50.2k part-time jobs were added. Indicators are that any employment growth is being driven more by part-time roles, with a growing divergence between employment growth and growth in hours worked. Partly because of the employment figures, the Aussie dollar fell below the US$ 0.68 level and it is certain that the RBA will cut rates again to 0.75%, a record low, as early as 01 October.

As expected, the Fed cut interest rates for the second time in three months, with the 0.25% reduction leaving them at between 1.75% – 2.0%. Chairman, Jay Powell said that the move was to shore up the US economy, amid “uncertainties” about future growth, with President Trump commenting “Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!”.

Also this week, the Fed continued to pump in up to US$ 75 billion a day to preserve the Federal Reserve’s control over short-term interest rates. The repurchase agreement operation injects more liquidity to the system, as banks have been struggling to find the cash needed to meet reserve requirements; this, in turn, has seen a hike in short-term borrowing rates.

YTD, UK house prices rose at their slowest rate in July since September 2012, indicating that there had been general slowdown in UK property price growth. Although the market slowed in London and the SE, the biggest falls were recorded in the NE, with annualised declines of 2.9%, with Wales at the other end of the spectrum with an increase of 4.2%. The average price of a UK house has risen to US$ 285k.

UK inflation growth dropped to its slowest rate in almost three years as it dipped to 1.7% in August from 2.1% a month earlier; the two main drivers cited were falling costs of computer games (down 5%) and clothing prices rising “less than last year after the end of the summer sales” – 1.8% compared to 3.1% in 2018. These figures will widen the gap between inflation and wage growth (at 3.8% in July) and will lead to increased household spending which in turn will boost GDP figures. Even the BoE has at last intimated that the country will not go into recession this year – a great stride forward from their previous prediction that the economy would fall off a cliff following the Brexit referendum. They did however think that a no-deal Brexit would lead to weaker growth, higher inflation and a further drop in the value of sterling.

However, by the end of the week, there seemed to be movement on the Brexit front with Jean Claude Junker announcing that there still could be a deal with the UK. This is not the first time that the EU has changed its mind, on an important issue, at the last minute and this softening of its position points to the fact that a no deal exit would also harm member countries. Indeed, it would be hard to find any other organisation that is so adept at 11th-hour trade and political agreements. All that has gone on before represents basic 101 negotiation skills positioning in order to obtain the best deal for them, even at the other party’s cost.

It is almost a shoo-in that an agreement will be reached over the controversial Irish backstop and that Boris Johnson will deliver an acceptable alternative. Then, with further tweaks to other aspects of the agreement, it will be long forgotten that in summer the EU had stated categorically the withdrawal agreement was not up for renegotiation. Finally, the UK can sing we can’t go on together with Suspicious Minds.

True Colours                                           29 August 2019

Finally, some good news for the Dubai realty sector, with a Knight Frank report that luxury property prices showed a 0.3% increase in Q2 (but still down 6.0% over the previous twelve months). However, the emirate is only ranked 42nd out of out of 46 cities, covered in the latest Knight Frank Prime Global Cities Index, which listed Berlin at the top of the ladder (showing a 12.7% annual growth, with Vancouver at the other end, declining 13.0%). Hong Kong still remains the most expensive global prime residential city market, with an average price of US$ 4,251 per sq ft; Dubai is a lot more affordable, with average per sq ft prices of US$ 625. It is inevitable that Dubai real estate will benefit from the on-going trouble in the once-held British colony.

Oyo Rooms and Gallery Suites Vacation Rentals have signed a US$ 5 billion deal to furnish and manage 10k Dubai holiday homes, to meet the growing demand for short-term and holiday lets. Located in areas such as Dubai Marina and Palm Jumeirah, the venture is confident of becoming the service provider of choice for the exclusive end of this burgeoning market. Gallery Suites Vacation Rentals is a subsidiary of the UAE-based IBC Group, whilst Oyo is the third largest hospitality company in the world. It may well benefit from its choice of Berkshire Hathaway Home Services Gulf Properties to play an advisory brokerage role in identifying, acquiring and financing the right properties.

Five Jumeriah Village is set to open its doors in JVC next month. The new hotel, located in Jumeirah Village Circle, comprises 247 rooms and suites, along with 254 1-4 B/R hotel apartments; the chic hotel also boasts 269 pools and jacuzzis. Nearby, Nakheel has released one hundred 4-5 B/R villas, with prices starting at US$ 871k –  part of its new gated community, containing1.6k Mediterranean and Moroccan style villas.

Just when you thought that Dubai was teeming with too many schools, the Knowledge and Human Development Authority announce that five new ones will open this school year and at least three more next; it also added that 13k new seats would be made available to give parents an even wider choice for their children’s education. Over the last three years, 41 new schools have opened in Dubai which has seen the number more than triple over the past decade to the current 119.

Since its 2016 start-up, India’s Cure.fit has managed to raise over US$ 400 million in four rounds of funding. Now it is to spend US$ 10 million to test the UAE market, with the aim of opening fifty gyms (35 in Dubai) and get up to 20% of the local US$ 545 million market, set to rise by 50% to US$ 817 million over the next three years. Although there are some major players in Dubai, such as Fitness First and Gold’s Gym, the market is fragmented with over 91% of fitness outlets being independently owned.

Dubai Economy reported a 23% hike in the number of H1 trademark infringement cases, with its Intellectual Property Protection section resolving 186 cases (cf 151 in H1 last year).  The top three countries lodging cases were US, France and Switzerland with numbers of 37, 33 and 21 respectively. Furthermore, there were 38 and 22 cases involving cosmetics and personal care products. Over the period, there was a 63% increase in trademark files registered on the DED’s ‘IP Gateway’ portal, as global trademark owners registered over 4.7k brands; more than 50% were lodged by three countries – US, UAE and Germany, with 1,482, 742 and 325 files.

A major scam, involving 6k tonnes of missing rice, is being investigated by Dubai Police. The fraud was reportedly carried out by six men and two companies, as well as staff at a money exchange house. The suspects, purporting to represent a Dubai trading company, duped millions of dollars when as many as 23 TTs were cancelled after their cheques bounced. When the real traders travelled to Dubai to check on the situation they found that the Al Qouz warehouse, which should have had 250 containers full of rice, was empty; furthermore, the Dubai trading company’s office in JLT was also left vacant.

Dubai Police has also warned residents to be aware of other scam artists, using counterfeit foreign money, being offered at above normal rates. Last year, the authorities seized over US$ 272 million (one billion dirhams) and arrested 471 suspects, with 500 cases of counterfeit bills being detected. (This scam is somewhat bigger than the Italian suit man who has been around for at least twenty years).

Although the country’s population has only grown 5.2% to 9.543 million over the past four years, the number of road traffic deaths in the UAE has fallen by 34.2% to 468 in 2018. With the number of vehicles on the road increasing significantly over that period, the number of serious accidents dropped 24.1% to 3.7k. The government is on track to meet its 2021 target of reducing its road mortality rate to three per 100k.

The fuel price committee has set September pump prices in a monthly process, that started in August 2014, of adjusting prices according to market conditions. Special 95 and diesel have both fallen by 4.4% to US$ 0.589 and 1.7% to US$ 0.648.

Mars has become one of the first global companies to take advantage of the country’s new foreign direct investment (FDI) laws that allow them 100% ownership for the first time ever; in the past, 51% local ownership was mandatory. The privately-owned food company has invested US$ 150 million since setting up in Jebel Ali Free Zone in 1993. Its range of brands include Dolmio and Uncle Ben’s, as well as pet food brands Whiskas, Royal Canin and Pedigree. Following its US$ 23 billion 2017 acquisition of chewing gum maker Wrigley, it boasts five of the top ten confectionery brands in the country – Galaxy, Snickers, Bounty, M&M’s and Extra.

A Dubai-based start-up could save delivery drivers almost US$ 7k a year, with the September launch of UAE-designed electric scooters, costing from US$ 4.0k to US$ 4.5k. The savings would come from reduced maintenance, no fuel charges and no registration charges – and taking polluting motorcycles off the road will lead to cleaner air. One Moto hopes that it could sell up to 50k units over the next three years as it looks to regional expansion.

The recently launched Dubai-based Galaxy Racer Esports is to host the world finals of the third annual Girlgamer e-sports festival in December. The event, at Meydan Grandstand, will see nine five-player teams battling it out to see who will win in the games of League of Legends and CounterStrike Go. The company hopes to encourage and develop local talent in the ever-growing e-sports sector and although it attracts a global audience of 454 million, and revenue in excess of US$ 1.1 billion, there is a lack of infrastructure, funding and opportunities in the region. Galaxy Racer eSports hopes to change all that.

The UAE is the first Gulf country to introduce Indian Rupay, that country’s answer to Mastercard and Visa, which was launched by Prime Minister Narendra Modi in Abu Dhabi last Saturday. Within weeks, the Rupay card will be accepted by 175k merchant locations of 21 businesses and 5k ATMs in the UAE.

Following initial reports in May, GEMS Education confirmed that it had completed the acquisition of Saudi Arabia’s Ma’arif Education, through a joint venture with Hassana Investment; no financial details were made available. Working with the Kingdom’s largest private school group, having 22k students, the Dubai-based schools operator plans to invest up to US$ 800 million, over the next decade, to acquire and develop more than fifty schools; these would educate more than 100k students across the country.

Emaar Misr has rejected an “utterly false” claim by Egyptian businessman, Wahid Raafat, involving more than 400 acres of land where it is building the up-market Marissa residential and leisure development. The Egyptian subsidiary of Emaar Properties has a portfolio, valued at US$ 3.2 billion, in the country and has claimed that it bought this parcel of land by way of a public government auction.

A unit of Arabtec Holding has been awarded a US$ 112 million by Emaar Misr to build two urban projects, comprising 449 residential units, in Cairo. The same company was awarded a US$ 26 million contract in February for 42 units. Emaar Misr has already completed 6.5k units in the huge project and expect to deliver a further 800 prior to year end.

Emirates Reit posted a 96% year on year slump in H1 profit to just US$ 1 million, largely attributable to a US$ 5 million revaluation impairment on a portfolio of around US$ 1 billion; revenue was 7% higher at US$ 36 million. It is to invest US$ 52 million over the next six months on buying properties in what continues to be a buyers’ market, as prices still remain stubbornly low. It is focusing its acquisition efforts on education and office buildings in Dubai and is reportedly near to completing deals.

MAF Group has posted 1.0% increases in both H1 revenue, at US$ 4.8 billion, and profit of US$ 571 million in what the company said was because of “challenging market conditions and more cost-conscious consumer behaviour across the region”.

Although there were more than 100 million visitors and occupancy was at a credible 93%, MAF – Properties recorded revenue of US$ 572 million, 3% down on the same period in 2018. Meanwhile, its hotel operations saw occupancy 2% higher at 78% but RevPAR (revenue per available room) fell in line with the market. However, MAF – Ventures fared better posting 16% increases in both revenue and profit to US$ 354 million and US$ 37 million respectively. With weak consumer confidence abounding, it was no surprise that, despite the opening of new stores in Egypt, revenue was flat at US$ 3.9 billion, with profit dipping 1% to US$ 164 million.

DP World and the Zhejiang China Commodity City Group Company signed a 70:30 agreement to develop a “smart” wholesale and retail traders’ marketplace in Jebel Ali Free Zone. Construction of the first phase, covering 220k sq mt and with an estimated US$ 150 million investment, will start in Q4, to be completed by the end of 2021.  The whole development, which will have an area of over 800 km sq mt, will take a little longer. This is yet another example of the increasing trading relations with China which is expected to double over the next two years to US$ 70.0 billion.

The bourse opened on Sunday 25 August and, having shed 131 points (4.7%) the previous three weeks, lost a further 10 points (0.4%) to 2769 by 29 August 2019. Emaar Properties, having lost US$ 0.07 the previous fortnight, was a further US$ 0.01 lower to close on US$ 1.35, with Arabtec also down US$ 0.01 at US$ 0.44. For the month of August, Both Emaar and Arabtec lost ground – by US$ 0.16 and US$ 0.04 respectively but YTD, Arabtec jumped US$ 0.22 whilst Arabtec lost US$ 0.08 from their 01 January openings of US$ 1.13 and US$ 0.52. Thursday 29 August witnessed low trading conditions of 159 million shares, worth US$ 45 million, (compared to 70 million shares, at a value of US$ 29 million on 22 August).

By Thursday, 29 August, Brent, having gained US$ 2.61 (1.5%) the previous fortnight, was US$ 1.09 (1.8%) higher at US$ 61.08. Gold lost US$ 23 (1.5%) the previous week, but regained all that and more, closing US$ 29 (1.9%) higher on Thursday at US$ 1,537. 

Naspers, South Africa’s largest company by market value, has created Prosus, a new entity, containing assets including a stake in China’s Tencent, as well as international interests in industries such as online food delivery and classified advertising. When it lists on the Amsterdam stock market, with a stock value in the region of US$ 100 billion, it will become the third largest traded behind Royal Dutch Shell and Unilever. The parent company is valued in excess of US$ 34 billion, and owns 31% of the Chinese tech giant, will retain a 73% stake in the new entity.

Not helped by falling sales in the UAE, Ace Hardware International Holdings, Ltd, which manages operations outside the USA, posted a US$ 10 million decrease in Q2 revenue, although the Group reported a 6.3% hike in total revenue to US$ 1.7 billion. The world’s largest retailer-owned hardware cooperative, which has 17 distribution partners worldwide and 5.2k outlets globally, saw profit dip 1.8% to US$ 54 million.

US toymaker, Hasbro, has agreed to pay US$ 4.0 billion for Entertainment One, the studio that makes the Peppa Pig and PJ Masks children’s shows. The world’s largest toy maker, in terms of stock market value, has paid a 26% premium for a company that has respected scripted and unscripted TV production and development capabilities, which include animated and live action shows. Now Hasbro will be in a position to make larger films, previously having had to license its characters to studios. Weak sterling made the deal more favourable for Hasbro, (as did the sale of UK pub operator Greene King to Hong Kong’s Li family for US$ 3.3 billion).

US fashion retailer Forever 21 is considering a possible Chapter 11 bankruptcy filing, as it has failed to negotiate a refinancing package with possible lenders. Founded by Do Won Chang in 1984, the Group has over 800 outlets mainly in the US but also globally; it is one of the biggest mall tenants in the country and if it were to go under, it would join a raft of other household names which have recently dropped out from the US High Street.

Johnson & Johnson have been fined US$ 572 million by an Oklahoma court for its role in fuelling the opioid addiction crisis in that state; the case was the first of many thousands that will be filed against opioid makers and distributors. It is estimated that over 6k have died in Oklahoma (out of a country total of 400k) from opioid overdoses. Earlier in the year, OxyContin maker Purdue Pharma and Teva Pharmaceutical settled out of court for US$ 270 million and US$ 85 million. All monies collected will be used for the care and treatment of opioid addicts. The same week, Purdue Pharma, facing over 2k lawsuits linked to its painkiller OxyContin, is reported to be offering between US$ 10 billion and US$ 12 billion to settle out of court.

China’s Fosun Tourism, a major shareholder, looks likely to step in and save the 179 year-old Thomas Cook, after agreeing a rescue deal also involving banks and a majority of its bondholders. This would see the Chinese group investing US$ 545 million for at least 75% of the tour business and 25% of the group’s airline; banks and bondholders would put in the same amount, in return for at least 75% of the tour business and 25% of the group’s airline. This would be at the at the expense of other shareholders. (Fosun owns Wolverhampton Wanderers FC and the Club Med holiday business).

Eleven years after Altria, the biggest investor (35%) in e-cigarette market leader Juul Labs, spun off the Philip Morris business, the two tobacco giants are discussing a merger that would create a mega company, valued at US$ 208 billion with Marlboro-maker Altria worth US$ 88 billion and the other party US$ 120 billion. The fact that the industry itself is declining, with global tobacco sales falling 4.5% last year, is the main driver behind the potential merger. Both companies have been investing in other areas – PMI its own e-cigarette division and Altria in wine, beer and cannabis companies, as well as Juul.

There are always winners and losers when shares, commodities and currencies rise and fall. For example, Emirates NBD acquired Turkey’s Denizbank earlier in the year and saved US$ 400 million on the deal because of the devaluation of the lire – paying 15.5 billion lire. On the other side of the coin is billionaire Ferit Sahenk, the owner of Dogus Holdings, which has in its portfolio the Nusr-Et steakhouse, popularly known by its founder chef’s meme Salt Bae, as well as interests in other restaurants, entertainment outlets, marinas and car-distribution businesses. Now with the fall in the lire, he is struggling to repay his euro loans and has recently been selling assets, valued at US$ 694 million. The Turk wants to cut his euro debt to US$ 1.7 billion by the end of next year.

Germany’s economy is heading for further contraction and an inevitable recession come 30 September. Final analysis confirmed that GDP shrank 0.1% in Q2 and 0.4%, year on year. Because of various external factors, such as the US-China trade war, slowing global trade and Brexit, there was no surprise to see exports falling 1.3% on the quarter and at a faster rate than imports dipping 0.3%.

In its latest report, Bundesbank hinted that there is every chance that Germany will witness another contraction of its GDP that would put the country into a technical recession following Q2’s negative 0.1% decline. It must be inevitable that the Merkel administration will introduce a significant fiscal package to try and boost an economy that has seen the business climate falling as pessimism among companies fell to its lowest since the 2009 GFC.

On the side-lines of last week’s G7 meeting, the US and Japan agreed in principle to a bilateral trade deal which could be signed next month at the UN’s General Assembly in New York by Donald Trump and Prime Minister Shinzo Abe. The agreement covers agriculture, industrial tariffs and digital trade which would see Japan buy excess US corn, the sale of which has been badly hit by the trade war with China. Currently, the US exports US$ 14 billion worth of agricultural products – this deal would add a further US$ 7 billion.

In the latest tit-for-tat trade war, Donald Trump has levied a further 5% duty on some US$ 550 billion in targeted Chinese goods, bringing the tariff on imports worth US$ 300 billion to 15% and US$ 250 billion to 30%. This follows China unveiling retaliatory tariffs of US$ 75 billion of US goods. Following the news, both the Nasdaq Composite and S&P 500 fell – by 3.0% and 2.6% – as did US Treasury yields and crude oil. On Monday, the ASX, Australia’s stock market, lost US$ 16.5 billion, on opening, whilst the Aussie dollar sank below US$ 0.67.

On the news that Her Majesty, The Queen, had acceded to Boris Johnson’s request to suspend parliament from 09 September to 14 October, sterling plummeted below US$ 1.22. This move would reduce greatly the opposition parties to prevent the country falling out of the EU on 31 October, without a divorce agreement. There are critics of a no-deal Brexit that argue that such a clean break from the bloc would devastate the UK economy and send it falling into recession. Among them, the man with many hats – ex-Chancellor of the Exchequer, Phillip Hammond, who had backed Remain in the Referendum, but then confirmed he would support the withdrawal of the UK from the EU, saying “No ifs, no buts, no second referendums” in 2017. Now he appears to be on the other side of the fence again, showing his True Colours.

The World’s Gone Crazy!                                          22 August 2019

Property Finder reports that villa transactions have increased 35% in H1, although prices are 4.3% lower than H2 2018, to US$ 233 per sq ft, driven by more affordable properties entering the market; three of the more popular  communities are Dubai South, Dubailand and Town Square, taking business away from the likes of JLT. Sales price declines were more felt in Damac Hills, Emirates Hills and Green Community Motor City, with falls of 8.2%, 6.6% and 5.4% respectively. Prices in locations such as Living Legends, District One, Mirdif and Green Community DIP remained flat.

H1 apartment sale prices fell 3.9% compared to H2 2018 (and 11.7% over the past two years), with sales transactions 5% lower. 6.5%+ declines were seen in Al Sufouh (10.5%), Remraam (9.6%), Downtown Dubai (7.4%), Old Town (7.2%) and Jumeirah Lakes Towers (6.5%). Prices remained flat in Mirdif, Jumeirah Village Triangle, Dubai South, Arjan and Al Furjan.

Azizi Developments still plan to deliver 4k residential units from nine of its Dubai projects by the end of 2019; five are located in Al Furjan. The developer has already completed thirteen projects comprising 41 buildings and six shopping centres.

Damac is in discussions with DICO Properties to acquire two plots of land in Al Sufouh and Business Bay; no financial details were made available. The developer posted an 86.6% slump in Q2 profits to US$ 14 million, with revenue down 45.0% to US$ 265 million. In H1, Damac delivered almost 1.5k units (1.0% lower than the same period in 2018) which included the first phase of its signature master development Akoya, and two of its projects – Ghalia and Tower 108.

Paramount Dubai will launch the emirate’s first Hollywood-themed hotel one month later than planned at the end of next month. The property, located in Business Bay, has 823 rooms and features immersive video walls in the lobby and a Paramount Screening Room. Its superior rooms will be based on a number of the studio’s epic films, including the Great Gatsby Suite and The Godfather Suite.

Maison Privee has signed a preferred partner relationship with Gulf Sotheby’s International Realty that will see the vacation rental provider for the luxury hospitality sector manage a US$ 100 million portfolio of several Palm Jumeirah luxury signature villas. Maison Privee aims to become the largest operator of luxury properties in the country and deals like this might see this happening sooner than many expect. Buoyed by last year’s US$ 4 million Series A funding, it is building the right infrastructure to support faster growth.

According to KPMG’s Global Construction Survey, the sector is expecting growth of between 6–10% this year, as well as being confident that governance and technology are likely to play a significant role in the near future. The report’s findings include that technology – including the use of robots, smart tools and equipment as well as unmanned aerial vehicles – will lead to many jobs, currently undertaken by labour, being automated.

However, it faces two main threats – time and cost overruns as well as obtaining finance.

Dubai saw its H1 visitor numbers jump 3.0% to 8.4 million, with the three leading source markets being India, Saudi Arabia and the UK, with 997k, 755k and 588k respectively.  A positive sign is the 11.0% increase in Chinese numbers to 501k which will continue to head north in the future. The emirate now has 714 touristic properties, with a room portfolio of over 118k – 6.0% up over the past year; average hotel occupancy stands at 76%, with 15.7 million occupied room nights, a 5.0% annual increase.

In H1, Dubai’s Department of Economic Development issued a record 14.7k new licences, of which 7.6k were commercial and 6.7k professional. The five leading nationalities applying for new licences were Indians, Bangladeshis, Pakistanis, Egyptians and British. The DED also announced that every day at least one coffee shop and two restaurants open in Dubai, with 258 restaurants and 169 coffee shops starting business in the first four months of the year.

Over the past twelve months, the UAE central bank has reduced its holdings of the US Treasuries by US$ 8.1 billion (13.6%) to US$ 51 5 billion – and 3.2%, month on month – making it the 22^nd on a global ranking. Rather surprisingly, Japan, with US$ 1.12 trillion, edges out China’s US$ 1.11 trillion, as the global leaders of foreign holders of the US Treasuries.

Emaar Properties posted a 51.6 % hike in H1 Dubai sales to US$ 2.6 billion, helping the company achieve profits of US$ 847 million. Total H1 revenue, including international operations, was at US$ 3.2 billion with a US$ 13.4 billion sales backlog. Its international operations saw revenue contribution 12.5% higher at US$ 475 million accounting for 14.8% of total sales. It is estimated that the developer’s investment in other subsidiaries – including its hospitality & leisure, entertainment and commercial leasing business and Emaar Malls – contributed US$ 965 million, equating to 31% of total revenue.

The H1 results also indicated the progress of two other projects in which the developer was involved. In April, it acquired the final 35% of development management company Mirage that it did not already own for US$ 18 million, having paid US$ 34 million for the initial 65% in October 2015. Mirage, founded by Dene Murphy in 1995, has already developed several high hospitality projects such as the Opera House, The Address Downtown and The Island.

It also shed more light on its May US$ 6.8 billion Mina Rashid JV with DP World, entailing a mixed-use project comprising a yacht club, 12.6k sq mt of new beachfront and a waterfront retail and leisure scheme, billed as “The Dubai Mall by the sea”. It is reported that Emaar took control of the venture in June paying US$ 348 million for land and agreeing to share 30% of any future profits made from Mina Rashid over the project’s lifespan.

Topaz Energy and Marine, which was acquired for US$ 1.1 billion by DP World last month, saw Q2 revenue climb 42.4% to US$ 121 million, driving net profit after exceptions to US$ 25 million (compared to a US$ 1 million loss in the same period in 2018). Over H1, revenue was up 56% at US$ 235 million, with EBITDA 83% higher at US$ 141 million.

Meanwhile DP World posted a 10.8% hike in H1 revenue to US$ 3.4 billion, (some of which was attributable to recent acquisitions), as profit jumped 26.8% to US$ 753 million. Despite the uncertainty facing global trade, because of global trade disputes and regional geopolitics, the port operator is confident of reaching its year end targets. With its 2019 capex guidance still at US$ 1.4 billion, DP World has further investments planned in the UAE, Posorja in Ecuador, Berbera in Somaliland, Sokhna in Egypt, and London Gateway.

The bourse opened on Sunday 18 August and, having shed 104 points (3.6%) the previous fortnight, lost a further 27 points (1.0%) to 2769 by 22 August 2019. Emaar Properties, having lost US$ 0.07 the previous fortnight, was a further US$ 0.05 lower to close on US$ 1.36, with Arabtec flat at US$ 0.45. Thursday 22 August witnessed very low trading conditions of 70 million shares, worth US$ 29 million, (compared to 91 million shares, at a value of US$ 34 million on 15 August).

By Thursday, 22 August, Brent, having gained US$ 0.85 (1.5%) the previous week, was US$ 1.76 (3.0%) higher at US$ 59.99. Gold, having jumped US$ 117 (8.3%) the previous fortnight, lost US$ 23 (1.5%), to close on Thursday at US$ 1,508. 

In September 2017, an engine explosion on an Air France A380 took place over Greenland, with a titanium alloy part, the centrepiece of a 3 mt- wide fan, falling to the ground. This has recently been recovered and has led investigators to study a possible manufacturing flaw that could possibly lead to urgent checks on dozens of Airbus superjumbos, that have carried out a certain number of flights.  BEA, the French air accident agency, reported a “sub-surface fatigue crack” on the recovered part and the US engine maker was preparing checks.

The Australian Securities and Investments Commission is suing one of the four big banks in the country, National Australian Bank, over failures with its defective home loan “introducer’ programme. The allegations are that the bank accepted sometimes false information and documents from third party introducers (including accountants, tailors, gym workers and real estate agents) who were not licensed to engage in credit activity. This case revolves around commission being paid by sixteen bankers to 25 unlicensed people involving 297 loans between 2013-2016.  However, ASIC believes that over this time period, the practice brought in 46k loans, worth US$ 16.8 billion for NAB, who could now be facing fines of up to US$ 350 million for their shady operations.

It seems that Deutsche Bank has got off lightly, having only been fined US$16 million to settle a US regulator’s allegations that it hired relatives of overseas government officials to win business between 2006-2014; most of the “hiring” was carried out in the Asia Pacific-region and Russia. Not surprisingly, the bank, which created false books and records that concealed corrupt hiring practices, agreed to settle the case without admitting or denying wrongdoing.

Although 2018 salaries for UK chief executives dropped 13%, they are still a staggering 117 times more than the average full-time worker – US$ 4.27 million v US$ 36k. The CIPD report also noted that last year, only six of the FTSE 100 companies were run by a woman, compared to seven the year before. There are some who think that the fat cat bosses are more concerned with maintaining share prices on the high side, so as to boost their annual bonuses, whilst not focussing on the long-term health of their company. However, it is unlikely that the status quo will change and that the average worker will have to continue to graft for more than a century to earn the same pay a CEO gets in just a year.

Thailand is reeling from the current global trade tensions that have been impacting on the country’s exports so that recent estimates of 2.2% growth are now likely to contract by 1.2%. Trade is not being helped by the fact that the baht has gained more this year, against the greenback, than any other regional currency. Growth is also being impacted by   smaller gains from tourism (annualised growth slowed to 1.1%), and domestic consumption, with high household debt restraining consumer spending. However, there are hopes that a US$ 10 billion government stimulus package may have a positive effect.

President Hassan Rouhani could be planning to slash four zeroes from the Iranian currency which would devalue the rial and rename it as toman. If this were to go ahead, it would return the currency name ‘toman’ that has not been used in the country since 1930. Some consider the move as the president’s way of helping the nation deal with increasing prices, particularly when the rial has fallen from 116,500 to 32,000, to the greenback, in the four years since the previous US president, Obama Barrack, signed the nuclear deal. With unemployment at over 12% (and under 25 – 25%) and the inflation at 40.4% monthly, the economy is certainly tottering.

In July, Japan’s merchandise trade deficit came in at US$ 2.34 billion, as both annualised exports and imports sagged – by 1.6% and 1.2% respectively.

Eurozone’s June current account surplus fell 39.4% to US$ 20.4 billion compared to the previous month – its lowest level since January 2017. Over the past twelve months, the current account surplus dipped 18.7% to US$ 353 billion, equating to 2.7% of the total bloc’s GDP, (compared to 3.4% in June 2018). Another worrying indicator saw eurozone’s headline inflation slow 0.3%, month on month, to 1.0% – its lowest since November 2016; this time last year, inflation was more than double at 2.2%.

Despite all the negative news surrounding Brexit, it is interesting to note that the UK tech sector continues to attract foreign investment, with a record US$ 6.6 billion posted in the first seven months of 2019; this is more than any other European country and is more than the amount invested per capita in the US tech sector. 55% of funds come from US and Asian firms which is 27.6% higher than this time last year. Two of the biggest deals involved US$ 800 million by Japan’s Softbank in UK’s Greensill and also US$ 400 million by the same company, in liaison with Singapore’s Clermont Group, in digital-only bank, OakNorth Bank.

As his first four-year tenure as president comes to an end next year, Donald Trump wants to keep the US economy in a strong position. There is no doubt that his massive 2017 tax cuts boosted the economy and accelerated both the local and global stock markets. Now he is considering a new, temporary payroll tax cut and a possible reduction in capital gains tax. The president is also keen to see a further rate cut but even though that is out of his hands, it will be probably occur in the coming weeks. More light may be shed at the weekend, when Fed chief, Jerome Powell (who the president has compared his handling of the economy to a “golfer who can’t putt”), speaks at a convention of global bankers in Jackson Hole Wyoming.

Ahead of this meeting taking place tomorrow, the IMF has indicated that it does not believe that the recent global spate of monetary policy easing – often resulting in weakening currencies – will be enough to improve most countries’ trade balances. Recently, Donald Trump has been tweeting that both China and the EU have been engaging in currency manipulation to benefit their exporters.

To show how crazy the financial world has become is to see that 30% of the global, tradeable bond universe is being sold with a guaranteed loss attached to the coupon, equating to a massive US$ 16.7 trillion deficit. So much for Economics 101 that has always taught US government bonds to be the safest investment! Now it seems that more and more central banks are looking at zero (or negative) rates which defies economic protocol that has always paid investors for putting their money into banks. It might be only a matter of time before banks start picking up tabs for customers’ mortgages. The World’s Gone Crazy!

Handle With Care                                                           15 August 2019

Property Finder came out with staggering figures relating to Dubai’s reality, indicating that in H1, 21k residential units were completed, (16k apartments and 5k villas/townhouses), and that a further 38k are scheduled for delivery by the end of the year. If all are handed over, that would mean 59k additional units to what many perceive is an already overcrowded portfolio – equivalent to 9k more than the four-year total that had been handed over in the previous four years. To the casual observer, this would indicate a further deterioration in the sector, with prices still heading down, as they have done when only 15k were being handed over in 2015, 2016, 2017 and 23k in 2018.

Last year, 23k units were added to the emirate’s portfolio bringing the total to 597k at the end of 2018, comprising 485k apartments, 105k villas and 7k Arabic houses.  Over the past three years, the population has increased by 10.3%, 10.3% and 7.3%, with the number jumping 30.5% from 2.446 million in 2015 to 3.192 million by the end of 2018.

Say 30% of the population live in camps or staff accommodation, that leaves 70% of Dubai’s population (2.23 million) in the housing market (either as tenants or landlords). Assuming 3.5 to a unit equates to a demand of 638k units (2.234 million divided by 3.5). If these figures are correct – a population of 3.2 million, 30% of which require housing units, the average “unit” houses 3.5 people and that the 2018 number of units was 597k – then, at the end of 2018, demand (638k) was 6.9% greater than supply (597k).

Eshraq Investments has awarded the construction contract for its Jumeirah Rise project in Jumeirah Village Circle. The Abu Dhabi-based investment company is to build two mixed use tower and one hotel apartments, that will have a 36k sq mt total leasable area footprint. It also indicated that its residential apartments in DIFC have an almost 100% occupancy rate.

InterContinental Hotels Group is to manage a new 170-key Holiday Inn property, located on Deira Islands, and due to open in 2023; it will feature the usual accoutrements and become IHG’s sixth regional midscale hotel. The operator currently has a 92-property portfolio, with a further 38 to open over the next four years. 

Hong Kong-based AS Watson, which operates twelve different brands in twenty-five locations, is reportedly interested in entering the UAE market. The health and beauty retailer, that owns chains such as Superdrug, is confident that, despite the current softening in the retail sector, it could take advantage of cheaper rents. It also noted that in a slowing market, that could affect personal care product sales, it will not impact on cosmetics as much. Indeed, on a global scale, the beauty industry tends to be more resilient than many others, with annual growth of up to 5% reported. The retailer is hoping that the well-known ‘lipstick effect’ – that consumers will continue to buy luxury items (but cheaper ones), even when there is a crisis – holds true in Dubai.

It is reported that Kanoo Travel is to sell a 65% controlling interest to American Express Global Business Travel (GBT) for an undisclosed fee. The new JV will provide managed travel and events services to regional clients. Kanoo Travel, one of the largest ME travel management networks, has been a key member of GBT’s global travel partner network for many years.

Owing to the 45-day closure of one of its two runways, DXB H1 passenger traffic dipped 5.6% (year on year) to 41.3 million, as the number of flights came in 11.6% lower at 178k. Despite this “enforced” decline, Dubai International still remains the world’s busiest international airport by traffic volume. India, UK and Saudi Arabia are again the top three destinations, with 5.7 million, 3.1 million and 2.8 million customers respectively. Cargo also suffered for the same reason (and maybe from a sluggish global trade environment as well) and was down 18.3% to 1.036 million tonnes, with the number of bags, handled by the 175 km long baggage system, 3.9% lower at 35 million.

According to a recent Dubai Economy/Visa study, the UAE boasts the most advanced e-commerce market in the MENA. It forecasts that the sector will have an annual 23% growth rate over the next three years and, that by the end of 2019, transactions will top US$ 16 billion. One interesting statistic is that the average deal size in the UAE is US$ 144 – a lot higher than the US$ 79 and US$ 26 found in mature and emerging markets respectively. Furthermore, e-commerce penetration, at 4.2%, is more than the MENA average of 1.9% (and the GCC’s 3.0%). In the year to February 2019, apps for both food delivery and ride-hailing doubled their e-commerce share to 2.0%. There is no doubt that the expanding e-commerce sector in Dubai is boosting local economic growth.

One sector that seems to buck the current trend of flat or declining profits is banking, and latest figures serve to reemphasise this point, when looking at H1 results from those eighteen banks listed on the two UAE bourses. It is estimated that the combined H1 net profit of the listed banks jumped 16.7% to US$ 6.7 billion. The increase was seen more on the DFM, where Dubai seven banks’ profits were an impressive 32.4% higher at US$ 3.5 billion, whereas the eleven banks on the ADSE showed only a 3.5% rise to US$ 3.2 billion. Emirates NBD contributed 58.1% (a 50.0% hike to US$ 2.0 billion) of the Dubai total, whilst First Abu Dhabi Bank was responsible for a 54.6% share of Abu Dhabi’s total at US$ 1.7 billion.

Although Q2 revenue shot 54% higher to US$ 13 million, Dubai investment bank Shuaa Capital posted a US$ 9 million loss, compared to a US$ 4 million profit a year ago. Over H1, revenue was 61% higher at US$ 28 million but still recorded a loss of US$ 15 million, following a US$ 7 million profit in H1 2018. The main driver was a 46% jump in expenses including finance costs, 120% higher, and a US$ 3 million impairment provision, now standing at US$ 5 million. Last month, the shareholders agreed to Abu Dhabi Financial Group taking over the firm in a reverse takeover, creating a new entity, with US$ 12.8 billion of assets under management, of which the major share of US$ 11.5 billion being introduced by ADFG.

Amanat Holdings PJSC posted a 28% increase in H1 total income to US$ 17 million, as profit was 26% higher at US$ 10 million. If the Royal Hospital for Women & Children was taken out of the equation, since it only opened in Q1 and carried forward pre-operating losses, the profit would have been 56% to the good. 85% of the total income was attributable to income from associates and subsidiaries (compared to 49% a year earlier), as the US$ 327 million invested in four portfolio companies started to pay dividends. As at 30 June, the company carried an excess cash balance of US$ 146 million.

H1 results for Damac Properties showed revenue of US$ 518 million and a US$ 22 million profit; during the period, the developer delivered nearly 1.5k units and had sales totalling US$ 490 million, as it launched its latest project, Zada in Business Bay, and had its first handover in Akoya. At the end of June, the company saw its total assets 2.0% lower at US$ 24.7 billion, whilst its gross debt fell by 25.5% to US$ 1.2 billion.

Arabtec Holding reported a 47.2% decline in Q2 net profit of US$ 7 million, with revenue falling 8.4% to US$ 597 million; H1 profit slumped 49% to US$ 16 million. The Dubai-listed contractor reduced its debt by US$ 102 million in the first six months and despite the decline in new awards during H1, its backlog remained strong at US$ 3.8 billion.

In line with other developers, Deyaar Development posted disappointing H1 profit numbers, down 44.5% to US$ 10 million although revenue moved higher by 7.5% to US$ 92 million (with Q2 revenue 17.6% higher at US$ 44 million). The Dubai-listed property firm expects better results, as it launches its next hospitality project, in partnership with Millennium Hotels and Resorts Middle East and Africa, and sees the first Midtown district, Afnan, in its final stages.

The bourse opened on Tuesday 13 August, after the extended Eid Al Adha break, at 2838, and having shed 62 points (2.1%) the previous week lost a further 42 points (1.5%) to 2796 by 15 August 2019. Emaar Properties lost US$ 0.04 the previous week and shed a further US$ 0.03 to close at US$ 1.41, with Arabtec flat at US$ 0.45. Thursday 15 August witnessed very low trading conditions of 91 million shares, worth US$ 34 million, (compared to 194 million shares, at a value of US$ 64 million on 08 August).

By Thursday, 15 August, Brent, having lost US$ 4.67 (7.5%) the previous week, gained US$ 0.85 (1.5%) to US$ 58.23. Gold, having jumped US$ 96 (6.8%) the previous week, rose a further US$ 21, trading 1.4% higher on Thursday at US$ 1,531. 

The world’s biggest profit-making company disclosed its financial results for the first time ever. Saudi Arabia’s Aramco posted an 11.0% dip in H1 profits to US$ 46.9 billion, as its earnings before interest and tax declined 9.0% to US$ 92.5 billion; the main driver to these decreases was falling energy prices. However, free cash flow headed north – up 7.0% to US$ 38.0 billion – with H1 capex 12.1% lower at US$ 14.5 billion. The energy giant is planning to acquire 20% of India’s Reliance Industries’ oil-to-chemicals business at an enterprise value of US$ 75 billion.

Apple’s ranking in global smartphone Q2 sales dropped to fourth, as it posted a 14.6% decline to 35.3 million units. It is estimated that the three leading companies – Samsung, Huawei and Oppo – accounted for over 52% of the global market, with shipments of 75.1 million, 58.7 million and 36.2 million respectively. Overall, there was an estimated 4% fall in smartphone sales, driven to some extent by older iPhone users keeping their phones for a longer time to avoid buying new, expensive models. Despite the ongoing trade tariff war with the US, it is interesting to note that Chinese tech firms – Huawei, Oppo, Vivo, Xiaomi and Realme – now account for 42% of the global smartphone market, a record figure that is set to grow in the future.

A unit of Macquarie Group is to spend almost US$ 2.0 billion to acquire a 40% stake in a UK offshore wind farm from utility, Iberdrola. The Spanish company expects the sale to meet its 10 GW of offshore wind power target over the coming years. It is estimated that the East Anglia One site profit-making will generate income of up to US$ 500 million, when it starts operating next year. Wind power is becoming more prevalent on a global scale and provided more than half of the UK’s energy needs last week.

With a July vacancy rate of 10.3%, the number of empty shops in the UK High Street hit a four-year high, with monthly footfall 1.9% lower – its worst performance since 2012. Interestingly, although High Street traffic was down 2.7%, footfall in retail parks increased by 1.2%. Last year, the Centre for Retail Research estimated that 2.5k mostly medium or large retail businesses failed, with this year expected to end with even worse figures.

With an estimated capitalisation at over US$ 211 billion, Bitcoin accounts for nearly 75% of the global market – and is ten times the size of its closest competitor, Ether. Last week, the cryptocurrency traded 14% higher on the week, whilst most of its rivals saw their value drop. Maybe this asset class, like gold and government bonds, is benefitting from investors looking for a safe haven to place some of their funds. One fact is certain – Bitcoin is operating in a volatile market and although it is trading this week at US$ 12k, earlier in the year it was worth only US$ 3.6k but just two months ago in June was US$ 10.4k higher at US$ 14.0k.

In 2009, the then Prime Minister Najib Razak established the 1MDB state fund and has been accused of pocketing US$ 681 million from the sovereign wealth fund, to which he pleaded not guilty earlier in the year. Now the country’s regulators have charged seventeen current and former Goldman Sachs bankers in connection with their roles “in arranging, structuring, underwriting and selling the three bonds” that raised US$ 6.5 billion for the SWF. Because of the “severity of the scheme to defraud and fraudulent misappropriation of billions in bond proceeds”, convictions could result in prison sentences of up to ten years and fines of at least US$ 250k.

The RBA governor, Philip Lowe, has not ruled out having to cut Australian rates from its current 1.0%, or even introducing quantitative easing, if further measures are needed to stimulate the country’s flagging economy. The central bank has just reduced its 2019 growth forecast (again) by 0.25% to 2.50% but upped its 2020 unemployment rate to 5.25%, as wage growth remains moribund at 2.3%. Apart from a global slowdown, that has a negative impact on the country’s three main sectors – mining, agriculture and tourism – the central bank is concerned about consumer spending, (this has remained flat despite lower interest rates and tax cuts), and high levels of household debt. The 1.5% inflation rate is still some way off the bank’s 2.0% target (and is unlikely to be breached for at least another eighteen months). It is all but certain that rates will again be cut this year and when that happens, the currency will continue to remain south of US$ 0.70.

Once again, South Africa is going through turbulent economic times, as the rand becomes the world’s worst-performing emerging market currency, driven by not only a trade slowdown, and the threat of a global recession, but also domestic issues. This has led to its currency recently losing 10% in value, (now trading at 15 to the US$), unemployment rising to a worryingly high 29% and domestic growth contracting this year by 3.2%; latest figures indicate that this year, the country may only manage a 0.7% GDP increase. Factors, such as national power utility Eskom having had approached the government for assistance, with its massive US$ 7.8 billion debt, do not help and are an indicator why most credit ratings agencies, excluding Moody’s, have assigned the country’s bonds junk status.

On Monday, following negative primary election results for President Mauricio Macri, Argentine’s economy took a battering on both the stock market and currency fronts. Some of the country’s most traded stocks slumped by almost 50%, as the main Merval index closed down 31%, whilst the peso initially lost 30% in value to a record low before closing the day 15% lower to the greenback. With the country going to the polls in October, Alberto Fernández is now seen as the frontrunner for the presidential race. If he were to win, it will be the end of four Macri years and of his unsuccessful pro-business agenda that has failed miserably to save the Argentine economy. The country is in recession, with a 22% H1 inflation rate and more than 30% of the country’s population living in poverty.

Germany’s trade surplus narrowed in H1, as strong domestic demand led to imports growing faster than exports, adding to signs that Europe’s largest economy is slowly reducing its dependence on foreign sales. It seems that the German government is finally heeding the long-time urgings of both the IMF and EU to focus more on domestic demand for a way to stimulate global growth and reduce its economic imbalances. For the past eight years, Germany’s current account has been above the EC’s indicative 6% of GDP level but has fallen from 8.9% in 2015 to 7.4% last year. Now, driven by a sluggish global economy, Brexit uncertainty and trade tariffs, its export-reliant economy is unfurling to the point that H1 imports were 3.0% higher at US$ 622.2 billion, whilst export growth was up by only 0.5% to US$ 745.4 billion (but still US$ 123.2 billion above imports). In June, the trade surplus was at US$ 20.2 billion – narrowing, year on year, by 11.4% to US$ 122.7 billion – as the current account surplus dipped 3.2% to US$ 141.1 billion.

As expected, the German economy contracted in Q2 by 0.1%, compared to the previous quarter, driven by a marked decline in exports, down 6% on the year. Germany is the world’s third largest exporter after the US and China and is often badly hit by a global slowdown. The economy narrowly missed a recession (marked by two successive quarters of negative growth) last year but, with early signs for Q3 looking ominous. Europe’s powerhouse economy could hit the buffers. However, Chancellor Angela Merkel considers that the economy will move north this year and feels there is no need for any further stimulus. She may be in for a shock.

Official figures confirmed that the UK economy contracted by 0.2% in Q2 – for the first time since 2013 – following a 0.5% expansion the previous quarter. If the next quarter’s figures fall into negative territory, the country will enter a technical recession. Like most other global economies, the UK is being hit by slower global growth, as well as the added factor of Brexit uncertainty. Basic economics teach that the main factor that impacts market decisions is uncertainty; this will disappear one way or another, by 31 October and when that specific impediment is removed, the country will move forward at a faster rate than other countries. Prime Minister Boris Johnson has also promised a fiscal stimulus package to cope with Brexit, and a no-deal split, that will have the double whammy of improving consumer spending and a probable 0.25% rate cut by the Bank of England.

UK wage growth continued its upward trend in June, with a growth of 3.9% – the highest in eleven years – as the 76.1% employment rate, equating to 32.8 million, was the best recorded since records began in 1971. However, the Q2 unemployment rate shrank 0.2% – the first contraction recorded since 2012. Despite this improvement, it must be remembered that pay levels have yet to return to their pre-downturn peak. However, since March 2018, wage growth has been at a faster rate than inflation. These figures show that the UK economy continues to confound its growing number of critics and has built up an impressive head of steam.

Outgoing EC president Jean-Claude Juncker has confirmed that “we are not prepared to hold new negotiations on the withdrawal agreement but only to make certain clarifications in the framework of the political declarations that regulate future relations between the United Kingdom and European Union”. He also commented that a no deal (which now seems to be the likely outcome) would hurt the UK more than the rest of Europe. He remarked that “if it comes to a hard Brexit, that is in no one’s interest but the British would be the big losers. They are acting as though that were not the case, but it is.”. . . .”We are fully prepared even though some in Britain say we are not well set up for a ‘no deal’. But I am not taking part in these little summer games.” The sooner he goes the better.

For the sake of “health, safety, national security and other factors”, Donald Trump has decided to delay tariffs on some Chinese imports, including mobile phones, laptops, video game consoles and certain clothing items, until mid-December. However, 10% tariffs, totalling US$ 300 billion, imposed on some items, will go ahead next month. In return the US President expects something in return and there are hopes that China may decide to “buy big” from US farmers.

After two consecutive 0.1% rises the previous two months, US consumer price index climbed by 0.3%, in line with market expectations (and 1.8% year on year); the main driver was a 1.3% hike in energy prices which had dipped 2.3% in June, whilst food prices remained flat. However, the 2.2% annual rate of core consumer price growth was higher than expected and indicated that there are inflationary pressures at play. This is an indicator that an imminent rate cut is on the cards.

Latest data point to the fact that US economic growth will slow in Q3 to 1.8%, following annualised returns of 3.1% and 2.1% in Q1 and Q2. Based on these estimates, annual growth at the end of December is expected to be 2.5%, driven by the ongoing tariff war with China and the resultant slowdown in global trade, which has seen 2019 worldwide growth forecasts cut to 3.2%. Despite the Fed lowering borrowing costs in July, yields on government debt have touched three-year lows, including 30-year Treasury bonds approaching a record 2.106% low; indeed, every government security– ranging from one month to thirty years – are all trading below the 2.25% level. This is another sign that there will be another rate cut by the end of next month at the latest.

After two consecutive 0.1% rises the previous two months, US consumer price index climbed by 0.3%, in line with market expectations (and 1.8% year on year); the main driver was a 1.3% hike in energy prices which had dipped 2.3% in June, whilst food prices remained flat. However, the 2.2% annual rate of core consumer price growth was higher than expected and indicated that there are inflationary pressures at play. This is an indicator that an imminent rate cut is on the cards.

The dreaded “inverted yield curve” has reared its ugly ahead again and inevitably it is the harbinger of bad economic news. In a nutshell, this occurs when a government’s bond interest rate is lower for say two years than it is for ten. (In normal times, the longer the term of the bond, the higher the interest rate). It does not happen often but when it does it is followed by a marked slowdown or even a recession. This week, the event happened in both the US and UK and financial markets have flashed a warning sign to all stakeholders – Handle With Care!